(Cambridge Studies in International Relations) Rodney Bruce Hall, Thomas J. Biersteker, Eds. - The Emergence of Private Authority in Global Governance-Cambridge University Press (2003)

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The Emergence of Private Authority in

Global Governance
The emergence of private authority has increasingly become a feature

of the post-Cold War world. In The Emergence of Private Authority in
Global Governance, leading scholars explore the sources, practices, and
implications of this erosion of the authority of the state. They analyze
and compare actors as diverse as financial institutions, multinational
corporations, religious terrorists, mercenaries and organized criminals,
and assess the potential for reversal of the situation. The themes of the
book relate directly to debates concerning globalization and the role
of international law, and will be of interest to scholars and students of
international relations, politics, sociology, and law.
               is Assistant Professor of International Politics

at the Department of Political Science of the University of Iowa. He is the
author of National Collective Identity: Social Constructs and International
Systems (1999).
       .           is Director of the Thomas J. Watson Institute

for International Studies and the Henry R. Luce Professor of Transna-
tional Organizations at Brown University, Providence, Rhode Island.
His previous publications include State Sovereignty as Social Construct
(Cambridge University Press, 1996, coedited with Cynthia Weber).
CAMBRIDGE STUDIES IN INTERNATIONAL RELATIONS: 85
The Emergence of Private Authority in

Global Governance
Editorial Board
Steve Smith (Managing editor)
Thomas Biersteker Chris Brown
Phil Cerny Joseph Grieco A. J. R. Groom
Richard Higgott G. John Ikenberry
Caroline Kennedy-Pipe Steve Lamy
Ngaire Woods
Cambridge Studies in International Relations is a joint initiative of

Cambridge University Press and the British International Studies
Association (BISA). The series will include a wide range of material,
from undergraduate textbooks and surveys to research-based mono-
graphs and collaborative volumes. The aim of the series is to publish
the best new scholarship in International Studies from Europe, North
America and the rest of the world.
CAMBRIDGE STUDIES IN INTERNATIONAL RELATIONS
85 Rodney Bruce Hall and Thomas J. Biersteker

The emergence of private authority in global governance
84 Heather Rae
State identities and the homogenisation of peoples
83 Maja Zehfuss
Constructivism in International Relations
The politics of reality
82 Paul K. Huth and Todd Allee
The democratic peace and territorial conflict in the
twentieth century
81 Neta C. Crawford
Argument and change in world politics
Ethics, decolonization, and humanitarian intervention
80 Douglas Lemke
Regions of war and peace
79 Richard Shapcott
Justice and community in international relations
78 Phil Steinberg
The social construction of the ocean
77 Christine Sylvester
Feminist International Relations
An unfinished journey
76 Kenneth A. Schultz
Democracy and coercive diplomacy
75 David Patrick Houghton

US Foreign policy and the Iran hostage crisis
74 Cecilia Albin
Justice and fairness in international negotiation
Series list continues after index.

The Emergence of Private
Authority in Global Governance
edited by
Rodney Bruce Hall
University of Iowa
and
Thomas J. Biersteker
Brown University, Providence, Rhode Island
         
The Pitt Building, Trumpington Street, Cambridge, United Kingdom
  

The Edinburgh Building, Cambridge CB2 2RU, UK
40 West 20th Street, New York, NY 10011-4211, USA
477 Williamstown Road, Port Melbourne, VIC 3207, Australia
Ruiz de Alarcón 13, 28014 Madrid, Spain
Dock House, The Waterfront, Cape Town 8001, South Africa
http://www.cambridge.org
© Rodney Bruce Hall and Thomas J. Biersteker 2004
First published in printed format 2002
ISBN 0-511-03924-7 eBook (Adobe Reader)

ISBN 0-521-81861-3 hardback
ISBN 0-521-52337-0 paperback
For our teachers,
Hayward R. Alker and Friedrich V. Kratochwil
but man, proud man,
Drest in a little brief authority,
Most ignorant of what he’s most assur’d,
His glassy essence, like an angry ape
Plays such fantastic tricks before high heaven
As make the angels weep
Shakespeare, Measure for Measure, II, ii, 117
Contents
List of figures page xi

List of tables xii
List of contributors xiii
Preface and acknowledgements xv
Part I Introduction: theorizing private authority

1 The emergence of private authority in the international
system 3
     . 
2 Private international regimes and interfirm cooperation 23
.  
Part II Market authority: globalization and “globaloney”

3 Economic governance in an electronically networked
global economy 43
 . 
4 Global finance, political authority, and the problem of
legitimation 76
 . 
5 The state and globalization 91
 
Part III Moral authority: global civil society and

transnational religious movements
6 “Regulation for the rest of us?” Global civil society and
the privatization of transnational regulation 115
 .    
ix
x Contents
7 The global dimensions of religious terrorism 141

 
Part IV Illicit authority: mafias and mercenaries

8 Transnational organized crime and the state 161
 
9 The return of the dogs of war? The privatization of security
in Africa 183
    
Part V Conclusions and directions

10 Private authority as global governance 203
 .     
Bibliography 223
Index 241
Figures
1 The conventional relationship between function

and regulation page 132
2 The changing relationship between function and regulation 132
xi
Tables
1 Institutional arenas of global regulation page 126

2 Civil society-based regulatory campaigns 128
3 Global initiatives in regulation of sustainable forestry 130
4 Organized crime and the state 166
5 Capacity gaps, functional holes and transnational
organized crime 171
6 Targets and objectives of corruption 175
7 Typology of private authority 218
xii
Contributors
 .  is Director of the Thomas J. Watson Institute

for International Studies and the Henry R. Luce Professor of Transna-
tional Organizations at Brown University, Providence, Rhode Island.
.   is Associate Professor of Political Science at the
University of Victoria, Victoria, British Columbia, Canada.
  is a Doctoral Candidate in Environmental Studies at
the University of California, Santa Cruz, California.
   is Assistant Professor of International Relations
in the Department of Political Science at the University of Iowa, Iowa
City, Iowa.
  is Professor of Sociology and Director of Global
and International Studies at the University of California, Santa
Barbara, California.
 .  is the William H. Wurster Professor of Multina-
tional Management in the Department of Management at the Wharton
School of the University of Pennsylvania, Philadelphia, Pennsylvania.
 .  is Associate Professor of Politics at the University
of California, Santa Cruz, California.
  is a Doctoral Candidate at the University of the
Western Cape, South Africa, and Program Convener at the African
Gender Institute at the University of Cape Town.
 .  is Professor of Political Science and Director of the
Center for International Studies at the University of Toronto, Toronto,
Ontario, Canada.
  is Professor of Sociology at the University of Chicago,
Chicago, Illinois.
xiii
xiv Notes on the contributors
  is Lecturer in the Department of Political and Administrative

Studies, University of Botswana, and Research Fellow, Department of
Political Science, University of Stellenbosch, South Africa.
  is Director of the Matthew B. Ridgeway Center for
International Security Studies and Professor of Political Science at the
University of Pittsburgh, Pittsburgh, Pennsylvania.
Preface
This volume arises out of a workshop entitled “Private Authority and

International Order” convened at the Thomas J. Watson Institute for
International Studies, Brown University, Providence, Rhode Island, 12–
13 February 1999. The workshop was organized by Rodney Bruce Hall
in consultation with Thomas Biersteker, while Hall was a postdoctoral
research fellow in international relations theory at the Watson Institute.
The original objective of the workshop was to explore the devolution
of state authority, so central to the work of the late Susan Strange, and
to do so across issue areas that included, but transcended, the interna-
tional political economy. At the end of her life, Strange was studying the
sources and consequences of the “retreat of the state” and the devolution
of authority and sovereign perquisites of public authority to private actors
operating in the international political economy. The workshop was orga-
nized to explore these phenomena in the realms of international security
and international organization, and to generate analytical categories and
methodologies to study it.
During the course of the workshop lively debates ensued regarding the
nature and consequences of private authority in the international system,
as well as the long-term implications of the emergence of private au-
thority for the future of global governance. Workshop participants were
persuaded by the fruitfulness of the discussions and agreed that a col-
lection of essays should be assembled to capture the most salient issues
that emerged in the discussions. The purpose of this volume is to exam-
ine the emergence of private authority in the international system, and
the extent to which this phenomenon is significant in international orga-
nization and international security, in addition to international political
economy.
Subsequent to the workshop, we found topical and analytical gaps in the
research design of the project. The editors subsequently commissioned
the essay on transnational corporate networks by Stephen Kobrin, and
the piece on the operations of contemporary private mercenary armed
xv
xvi Preface and acknowledgements
forces by Bernadette Muthien and Ian Taylor in an effort to strengthen

the research design and comprehensiveness of the resulting volume. The
organization of the volume into three subtypes of private authority –
“market authority,” “moral authority,” and “illicit authority” – is a re-
sult of discussions of the editors who met at the end of May 2000 at
Brown University to draft the concluding chapter summarizing the most
theoretically significant findings of the volume.
The workshop discussion constituted two very intense, frenetic, and
full days of intellectual activity, and we gratefully acknowledge the debts
we have acquired to participants, and to other contributors to the discus-
sions whose work is not collected in the present offering.
The following scholars contributed papers to the original workshop,
many of which have subsequently been published elsewhere, and thus
are not included in this volume. Special thanks in this context go to Peter
Andreas formerly of the Center for International Affairs of Harvard
University, Ian Robert Douglas formerly of Bristol University, Craig
N. Murphy of Wellesley College, Richard Price of the University of
Minnesota, and Peter Uvin of Tufts University. We are also grateful to
Abbott Gleason, James Ron, Dietrich Rueschemeyer, Nina Tannenwald,
and Robert Wade of the Watson Institute at Brown University, for serving
as panel discussants during our workshop and for immeasurably enrich-
ing our understanding with their participation in the discussions. Douglas
Blum of Providence College played a similar role, and we thank him
for contributing to the lively workshop discussions. Special thanks go to
Craig Murphy who had originally intended to help edit and contribute to
this volume, but was forced to withdraw due to the weight of the burdens
attending his time-consuming duties as the current president of the Inter-
national Studies Association. The volume bears, nonetheless, the always
beneficial marks of his prescient commentary and advice. We also wish to
extend our thanks to the staff of the Watson Institute for the exceptional
logistical support and service that makes a workshop run smoothly, espe-
cially Leslie Baxter, Susan Costa, Sheila Fournier, Jean Lawlor, Patricia
Monahan, and Nancy Soukup.
Both editors would like to extend special thanks for the financial sup-
port of the Board of Overseers of the Watson Institute, who financed the
workshop, Hall’s research budget, and his postdoctoral fellowship. Hall
also acknowledges the financial support of his colleagues in the Depart-
ment of Political Science at the University of Iowa for providing research
assistance in the 1999–2000 academic year during which his contribution
to this book took shape. And Hall particularly wishes to extend thanks to
his former research assistant, Jonathan Acuff, who cheerfully took on the
Preface and acknowledgements xvii
tedious but exacting tasks of standardizing the notes of each contribution,

and of extracting a master bibliography from the collection, in addition
to many related tasks, each of which he performed flawlessly.
     . 

Part I
Introduction: theorizing private authority

1 The emergence of private authority in the
international system
Rodney Bruce Hall and Thomas J. Biersteker
Traditional notions about authority in the international system derive

from Weberian conceptions of the state and of the domain of international
politics. There is a presumption within much of international relations
theory, consistent with Weber, that the domain of the domestic is funda-
mentally different from the domain of the international. For Weber, the
essence of the state is its ability to claim “the monopoly of the legitimate
use of physical force within a given territory.”1 Because of their claims to
legitimate authority, most states “can rely on the habitual obedience of
their citizens by establishing legal codes in which the threat of physical
coercion is only implicit.”2
According to most traditional accounts, however, this ability to rely
upon legitimate authority for habitual obedience is largely absent in the
international system. International politics take place in a realm where
anarchy allegedly reigns. States act in their own interest and sometimes
employ force to achieve their objectives. The absence of a global state
has led many observers to deny the very existence of authority, defined as
legitimized power, operating within the international arena.3 States are
both the source, and the exclusive location, of legitimate, public author-
ity. This applies to the operations of states both in the realm of domestic
affairs, and in the international arena. Until recently, therefore, most ex-
planations of international behavior have concentrated on the coercion
employed by states or on the self-interested motivations of individual
states, to the virtual exclusion of the recognition by states of the legiti-
macy and authority of rules and norms operating within the international
system.4 Not only have states been asserted to be the principal actors in
the international arena, but they are also considered to be the only legit-
imate actors in international relations. The authority they exercise over
their subjects in the domestic realm conveys to them a legitimacy and
agency to interact with other states in the international society of states.
However, during the latter decades of the twentieth century, it became
increasingly obvious that there were a growing number of theoretical and
empirical challenges to these traditional conceptions about authority and
3
the international system. The concept of anarchy in the international

system has been challenged and reconsidered from a variety of different
perspectives.5 Rather than a simple Hobbesian state of nature, there is a
growing recognition of degrees of order and institutionalized, patterned
interaction within the international system. Forms of governance without
the presence of formal state or interstate institutions have been identified
in the international arena.6 International regimes, conventions, norms,
and ideational convergence facilitate aspects of global governance. The
boundaries between the domestic and the international have also begun
to blur, as issues that were once solely under the purview of domestic
law and politics, such as environmental standards and labor regulations,
are both influenced by, and increasingly affect, international law and
politics.7
At the same time, a growing number of actors – actors other than the
state – appear to have taken on authoritative roles and functions in the
international system. Many of these new actors have often been closely
associated with the practices associated with the phenomenon of global-
ization. They include, but are not restricted to, the apparent authority ex-
ercised by global market forces, by private market institutions engaged in
the setting of international standards, by human rights and environmental
non-governmental organizations, by transnational religious movements,
and even by mafias and mercenary armies in some instances.
While these new actors are not states, are not state-based, and do not
rely exclusively on the actions or explicit support of states in the interna-
tional arena, they often convey and /or appear to have been accorded some
form of legitimate authority. That is, they perform the role of authorship
over some important issue or domain. They claim to be, perform as, and
are recognized as legitimate by some larger public (that often includes
states themselves) as authors of policies, of practices, of rules, and of
norms. They set agendas, they establish boundaries or limits for action,
they certify, they offer salvation, they guarantee contracts, and they pro-
vide order and security. In short, they do many of the things traditionally,
and exclusively, associated with the state. They act simultaneously both
in the domestic and in the international arenas. What is most significant,
however, is that they appear to have been accorded a form of legitimate
authority.
While power and authority are closely related, authority is used here
to refer to institutionalized forms or expressions of power. What differ-
entiates authority from power is the legitimacy of claims of authority.
That is, there are both rights claimed by some superior authority and
obligations recognized as legitimate on the part of subordinates or sub-
jects to that authority. Having legitimacy implies that there is some form
Emergence of private authority 5
of normative, uncoerced consent or recognition of authority on the part

of the regulated or governed, “the normative belief by an actor that a
rule of institution ought to be obeyed.”8 This consent is the product of
persuasion, trust, or apathy, rather than coercion. People, institutions,
and states recognize the authority of tradition, the authority of exper-
tise, the authority of moral claims, and sometimes even the authority of
a “natural” inequality. These forms of authority “import some general
claim on human trust into a social relationship in order to introduce an
additional pressure for conformity beyond that which the relationship
itself can exert . . . if obedience is the counterpart of power, trust is the
counterpart of authority.”9
There is an implicit social relationship between those who claim or ex-
ercise authority and those who are subject to, or recognize, authority. The
relationship is a public one, to the extent that claims and recognition of
claims of authority involve an open, visible process among different agents.
As R. B. Friedman observes, “there must be some public way of identi-
fying the persons whose utterances are to be taken as ‘authoritative.’ ”10
Being public does not, however, imply that a state or public institution
must be involved, or be wielding authority, even though they might partic-
ipate in recognizing it in certain situations. It does, however, imply that the
social recognition of authority should be publicly expressed. This opens
the possibility for the emergence of private, non-state based, or non-state
legitimated authority and the idea that “authority does not necessarily
have to be associated with government institutions.”11
While we proceed from the notion that the sphere of the “private”
can be defined in terms of what is not in the realm of the “public,” this
reciprocal, mutually defining relationship between public and private is
only a starting point for us. We do not intend to reify this distinction.
Rather, we will attempt to transcend the liberal tendency to associate
the private sphere “with the individual and freedom of markets and eco-
nomic exchange, while the public sphere is associated with state authority
and legitimate compulsion.”12 We recognize how problematic this dual-
istic identification (of the private sector with the market and the public
sector with legitimate authority) can be in actual practice. Our concep-
tion of “private authority” is intended to allow for the possibility that
private sector markets, market actors, non-governmental organizations,
transnational actors, and other institutions can exercise forms of legiti-
mate authority. We find it telling that at the beginning of the twenty-first
century there are so many examples of sites or locations of authority that
are neither states, state-based, nor state-created. The state is no longer
the sole, or in some instances even the principal, source of authority, in
either the domestic arena or in the international system.
There is a recognizable issue domain over which the relationship of

authority is typically recognized, although the boundaries of this do-
main are often imprecise and subject to forms of contestation. Never-
theless, authority entails both a social relationship between author and
subject, and a definable domain of action. The consent to authority is
socially constructed through a variety of different political and rhetori-
cal practices – ranging from behavioral consent to routines, norms, and
public declarations of recognition.
With the advent of globalization, a great deal of attention has been
focused on the authoritative role of the market and on market-based
actors or institutions. Susan Strange has written that, while realists tradi-
tionally have overemphasized political structure, changes in information,
communications, and financial technologies have “altered the basic rela-
tionship in any political economy – that between authority and market.”13
Strange contends that non-state actors, such as enterprises, transnational
social institutions, international organizations, and non-governmental or-
ganizations, are increasingly acquiring power in the international political
economy, and, to the extent that their power is not challenged, they are
implicitly legitimated as authoritative. Ian Hurd has made a similar argu-
ment, maintaining “[t]o the extent that a state accepts some international
rule or body as legitimate, that rule or body becomes an ‘authority.’ ”14
Authority can be exercised not only by intergovernmental institutions
like the International Monetary Fund, but also “by creditor banks in
negotiating debt rescheduling, or by firms choosing new locations for
production and employment.”15 The mobility of capital and the compe-
tition among states as potential recipients of global capital have created
a situation in which markets increasingly have the “authority to reward
or punish according to their judgment of how any government manages
its money supply, its fiscal deficit, its foreign debts, or, through deregu-
lation of cozy banking cartels, improves the efficiency of its banks and its
local credit markets.”16 States are often complicit in the creation of the
market as authoritative. When state leaders proclaim that the “forces of
the global market” give them little room for maneuver or independent
policy choice, they are participating in the construction of the market as
authoritative. They are not only ceding claims of authority to the market;
they are creating the authority of the market.
While some suggested that the market itself is becoming authoritative,
others have concentrated on the authority of private, market actors like
firms, regimes, and institutions. Claire Cutler, Virginia Haufler, and Tony
Porter have investigated the nature and functioning of private authority
in the development of transnational private regimes.17 They define a
transnational private regime as “an integrated complex of formal and
informal institutions that is a source of governance for an economic issue
area as a whole.”18 Their work explores other forms of organized interfirm

cooperation that are also accorded the trappings of authority.
The essays included in this book review the debates about the nature
of private authority in the international political economy. Claire Cutler
summarizes and extends the research she and her colleagues have con-
ducted over the past few years in the chapter that immediately follows
this one. Stephen Kobrin, Louis Pauly, and Saskia Sassen define the
parameters of the debate about the nature of the market as authority
in the succeeding three chapters. However, this book takes the discus-
sion of the concept of private authority one step further, beyond the
international political economy, by exploring the authoritative dimen-
sions of other private, non-state, and non-market based actors in the
contemporary international system. Essays by Mark Juergensmeyer and
by Ronnie Lipschutz and Cathleen Fogel consider the moral authority of
transnational religious movements and non-governmental organizations.
Chapters by Phil Williams and by Bernedette Muthien and Ian Taylor
describe the actions of influential private actors such as mafias and mer-
cenary armies, which are surely more problematic locations of authority,
but which are actors behaving in an apparently authoritative manner in
some contexts. In the pages that follow, we consider the emergence of
private authority in the international system in general terms, in markets,
as market actors, in transnational movements, and among mafias and
mercenaries. This is the first comparative exploration of the notion of
private authority in issue areas beyond the realm of international political
economy. In addition to forms of “market” authority, the volume consid-
ers the “moral” authority exercised by non-governmental organizations
or transnational religious movements, and the “illicit” authority of mafias
and mercenaries.
We are interested in the extent and the nature of the emergence of
private locations of authority in the international system, and their impli-
cations for the future of international order and global governance. Many
of these issues are related to the identification of the boundaries of state
and (interstate) public authority in a contemporary international system
characterized by the globalization of neoliberal ideas and practices. Where
(and how) are the boundaries of public authority being challenged, and
by whom? To what extent are these challenges profound or insignificant?
One salient analytical cut into the emerging issue of private authority in
the international political economy is the debate about whether the state
is complicit in the transfer of its once sovereign prerogatives (such as the
setting of exchange rates, the maintenance of a stable currency, or trade
management).
Where evidence exists that functions that were once the exclusive,
sovereign prerogatives of the state have devolved to the responsibility of
private actors, the question of state complicity arises. In such cases, is the
state complicit in the devolution of its authority to private actors? Has the
state delegated authority, enabled authority, or simply allowed authority
to slip away, and for what purposes? Or is the state merely impotent to
do much about this devolution of authority? Has the state no mechanism
with which to combat the collusion and coordination of firms with inter-
ests in minimizing state authority through the development of “private
regimes”?19 If the state is complicit in the transfer of authority to private
actors, is it because state managers wish to escape domestic accountabil-
ity for painful adjustments, which the requirements of macroeconomic
policy coordination suggest are indicated and necessary?20 Is neoliberal
globalization reorganizing rather than bypassing states, sometimes with
the participation of states in this process?21 Or is convergence among state
policies inadequate to support a claim of “disciplinary neoliberalism” in
the international system?22 Or, to take the question a step further, has
the state been captured, perhaps through the “indifference” of domestic
polities,23 by powerful actors within domestic society, whose interests the
captured state promulgates as economic, monetary, and trade policy?24
These questions have important implications for some of the cen-
tral debates within contemporary international relations. Disagreement
about the dynamic nature of sovereignty – about the evolution (or non-
evolution) of sovereignty – illustrates well some of the central disagree-
ments between structuralist and constructivist theorists.25 Constructivists
and poststructuralists tend to view sovereignty as a dynamic social insti-
tution the character of which is not only historically and socially con-
tingent, but which is also a constitutive element of the international
system.26 It is worth noting, in this context, that both of the editors of this
volume have contributed to these arguments.27 Committed structural-
ists, however, continue to see sovereignty as an essentially static concept,
even at times an overemphasized concept.28 Given that the concept of
sovereignty involves claims about authority, identity, and territory, the
idea that “authority” in the international system could be wielded by
private, rather than public, actors has enormous implications for theo-
rizing about the social institution of sovereignty, its salience, its changing
meaning, and its endurance. The future of the sovereign state, and the
resilience of its status as the principal unit of analysis of the international
system, is as much an empirical as a theoretical question. The work of
the contributors to this volume significantly enhances our understanding
of these empirical issues.
Another issue of longstanding contention in international relations the-
ory concerns the vitality, salience, and legitimacy of the state itself. Within
the realm of international political economy, scholars as diverse as Saskia
Sassen, Susan Strange, Matthew Horsman and Andrew Marshall, and

Ethan B. Kapstein have argued that neoliberal globalization is a challenge
to the legitimacy of states. They have suggested that social (as opposed to
civil and political) citizenship is in abeyance; that, while firms may have
full citizenship within the nation-state, the withdrawal of social rights
from the modern welfare state has resulted in the degradation of in-
dividual citizenship.29 Other scholars, however, have argued that these
assertions may be overstated,30 and that firms seek investment in states
with stronger, not weaker state capacities to provide an attractive, stable
climate for investment.31 Still others have argued that the impact of ex-
ternal economic pressures is largely determined domestically, and that
the effect of such pressures varies with the strengths or strategies of do-
mestic elites and institutions.32 Once again, the empirical and concep-
tual work contained in the chapters that follow add significantly to our
understanding of the changing nature of the state as an institution.
Our book is organized around the exploration of three different types of
authority identified above: market authority, moral authority, and “illicit”
authority. We begin, however, with a review of the most significant work
undertaken to date on the concept of private authority. Claire Cutler
(chapter 2) summarizes the most significant findings of her collaborative
work with Virginia Haufler and Tony Porter, and provides an essay that
extends their work on private authority beyond the realm of the inter-
national political economy. She encourages us to break from traditional
approaches to international relations and to explore the salience of private
subnational and transnational socioeconomic forces. She draws upon ma-
terialist ontologies in her analysis, and her insistence on the recognition
of the historical contingency of social action mirrors recent construc-
tivist scholarship on the historical contingency of sovereignty. Cutler’s
theoretical insights about the nature of authority suggest that two of its
most prominent features are its public nature and its identity as a social
construct.33
Market authority
In chapters 3, 4, and 5, Stephen Kobrin, Louis Pauly, and Saskia Sassen
offer three insightful and interestingly divergent perspectives about the
nature of market authority. In some of his previous work, Kobrin has
argued that globalization has replaced vertically integrated hierarchical
firms functioning within national economies with “a global, postmodern,
networked mode of organization where the very concept of geographi-
cally based economies may not even be relevant.”34 In chapter 3,
Kobrin describes how the “external sovereignty” of state actors has been
diminished. He conceptualizes sovereignty as the state’s capacity to

exercise jurisdictional authority over its own affairs, and explains the
reduction in sovereignty by the fusion of markets in high-tech indus-
tries brought on by prohibitive research and development costs. This
confronts national governments with a tradeoff between efficiency and
autonomy, and it appears that most national governments are opting for
the former.35 One possible outcome for state authority, he argues, is an
evolution in the meaning of sovereignty that might result in the emergence
of a neomedieval system of overlapping “subnational, national, regional,
international, and supranational authorities.”36 A logical consequence of
Kobrin’s analysis is that the emerging authority of private institutional ac-
tors in technology and finance leaves states with a choice between de facto
surrender of sovereign authority, or economic and technical marginal-
ization. This implies a pyrrhic victory for those who “choose” sovereign
autonomy.
In chapter 4, Louis Pauly raises important questions about whether
globalization radically diminishes state power. Pauly directs our atten-
tion to the sources of neoliberal globalization, arguing that we are in the
midst of an expansion of a specifically “American” vision of liberalism
throughout the world. The power of this vision and the leverage provided
by the expansion of the American economy has generated a grand neolib-
eral discourse on the blessings of markets and market solutions to national
and global problems. However, Pauly reminds us that resistance to this
project is only now emerging in discernible forms. He advises us to study
the origins of the transnational economic order for clues that while “the
logic of markets suggests globalism . . . the logic of politics remains deeply
marked by distinctly national identities” (p. 78 below). Pauly also takes
issue with “the language of inevitability” (p. 80 below) in the writings
of both proponents and opponents of globalization, and argues that it
is hardly inevitable that transnational capital actors will increasingly, or
continue to, exercise a “determinative influence over a widening range of
[national] economic . . . policies” (p. 81 below). For Pauly, there is noth-
ing new in the fact that capital mobility exercises constraining effects on
national fiscal, monetary, and macroeconomic policies. “[W]hat is new,”
he argues, “is the widespread perception that all states, all societies, and
all social groups are now . . . affected” (p. 81 below).
Pauly finds the state to be complicit in some of the devolution of its au-
thority to the vagaries of the market, because markets have always served
as a way to “obscure distributive issues” (p. 82 below) in democratic
societies. Markets help to diffuse the blame for negative economic out-
comes for the losers in domestic society, and the United States appears to
be extending this arrangement to the international arena. There is good
evidence to support the argument that the nearly universal global relax-
ation of capital controls and attendant moves to market-based decision-
making procedures in the formulation of national economic policy have
generated confusion among those who suffer the consequences of such
policies about just who is to blame. Matthew Horsman and Andrew
Marshall have consequently concluded that “the nation-state can no
longer be held accountable on the very issues which so directly and per-
sistently affect the daily lives of those that it purports to represent, mirror,
sponsor and protect. Once the citizen discerns this trend, the exercise of
authority by the state is undermined and authority necessarily shifts.”37
Pauly, while recognizing the problem of legitimacy,38 does not agree that
these conclusions necessarily follow. If history is any guide, he argues,
national citizens lay responsibility for financial crises and for their reso-
lution squarely at the door of national governments. This suggests that
governments failing to respond with any and all means, including capital
controls and even economic closure, would not remain long in power.
Because markets ultimately require stable political and institutional foun-
dations, Pauly insists that it remains the case that “markets [a]re a tool of
[state] policy, not a substitute for it” (p. 86 below). Like hegemonic sta-
bility theorists,39 Pauly argues that the system requires a crisis manager to
guarantee the stability of markets, and we can be certain that some state
or international institution would always step in to fill this role should a
crisis arise. When markets fail, “[a]gents of legitimate public authority”
take back “regulatory power, or . . . markets collapse” (p. 87 below).
Saskia Sassen has argued that citizenship for the average person has
been devalued by globalization, both in terms of the tangible, social ben-
efits of citizenship, and in terms of the right to affect policy at the polls,
or the political benefits of citizenship.40 If consumptive power and capital
are the new criteria for a full franchise, this situation disenfranchises the
poor, who lack these assets.41 Sassen retains her concern with issues of
global economic justice in chapter 5, but she also articulates an analytical
perspective that differs in important respects from that of both Kobrin
and Pauly. She maintains that the global economy simultaneously tran-
scends the authority of the national state, yet is at least partly implanted in
national territories and institutions. She suggests new analytical methods
for studying the relationship between globalization and state sovereignty.
She points out that economic globalization materializes partly in national
territory, and she develops a description of the international system in
the era of globalization that comprises an entire set of governance mech-
anisms. Some of these are centered on the state, and some within a bur-
geoning private legal framework that is developing within national legal
frameworks, but threatening to manifest itself independently.
According to Sassen, globalization is partial and particular, rather than

universal. It is a system of power that is generating new norms, thus
striving to generate legitimations and legalities. While globalization gen-
erates a new space for crossborder transactions, Sassen finds it more inter-
esting to focus on how the governance of this crossborder space is moving
from national legal frameworks to the interstate system than to concen-
trate on the volume, speed, density, and novelty of transactions. The new
strategic actors in the system, and the new bases of systemic legality, are all
private actors: firms, accountancy agencies, and standards setters. Sassen
contends that the globalization of liberalism and the “privatization” of
economic processes involves the relocation of regulatory functions from
public to private authorities.
Sassen agrees with Pauly that the state is at least complicit in this pro-
cess. She describes how governmental institutional structures are trans-
formed in the process of working with intermediaries. Changes are often
manifest initially as minor alterations in national legal codes such as,
when in response to currency crises, financial service firms generate
changes in state depository systems to normalize these institutions with
international standards. From these examples, Sassen illustrates how a
focus on the proliferation and consequences of information technologies
may obscure the more interesting issues of how private actors employ
these technologies in the work of producing and reproducing the or-
ganization and management of a global production system and a global
marketplace.
The emphasis on mobility of capital and the deterritorialization of eco-
nomic transactions in so much of the globalization literature obscures the
extent to which the apparatus of private governance of the global economy
is strongly territorialized or geographically “embedded” in global cities
and export processing zones. Sassen reminds us that, while economic ac-
tivity has indeed become spatially dispersed, the high-level management
and control functions of these activities are increasingly contained within
what Sassen has elsewhere referred to as “global cities,”42 which she char-
acterizes as strategic sites for the production of these specialized functions
to run and coordinate the global economy. Global cities such as Tokyo,
New York, London, and Sao Paulo are the sites from which the larger
production function is geographically dispersed. It is decision-making by
private actors in these financial centers that can lead to changes in the
national institutions and laws of states seeking access to their financial
products. This is the basis of their private authority.
In redirecting our attention, back to distinctions between the loca-
tions of production and the locations of authoritative decision-making,
Sassen helps us to understand why crossborder financial flow statistics
are not always useful, either for understanding globalization conceptually,

or for studying changing authority relations. She indicates that authority
relations have changed qualitatively, though some analysts might dispute
this claim. Nevertheless, Sassen sees an emerging governance role for pri-
vate firms and supranational organizations in the international economy.
Her analysis raises two fascinating questions, the answers to which might
help illuminate the emerging structure of authority relations. The first
question is: how is authority constructed and constituted by the discursive
justifications of the state in the process of ceding its sovereign perquisites
to private and other supranational actors? The second question is how
(and whether) the content of state authority has changed.
Pauly’s analysis raises an equally important and related question. He
contends that, while it is easy to delegate authority to financial markets
in relatively good economic times, when downturns come, states, as the
only agents of legitimate public authority, will take back regulatory power.
They will do so in their own interest, to avoid financial market collapse
and attendant social unrest. Pauly appears to argue that private authority
is a contingent and fleeting phenomenon, visible only until the next major
global economic downturn. However, to the extent that intermediaries
between private actors and the state generate institutional changes within
states, might these, per Kobrin’s analysis, lead to macrostructural changes
of the global financial architecture itself? The question then becomes
whether the state can ever take back regulatory authority once it has been
surrendered.
Moral authority
As Claire Cutler argues in chapter 2, private regimes entail both “formal
and informal institutions that [are sources] of governance for an eco-
nomic issue area as a whole” (p. 29 below). Non-governmental organi-
zations are private actors that can serve important epistemic and legit-
imation functions in formulating transnational policy decisions, regime
rules, principles, and decision-making procedures. Beyond the realm of
the international political economy, non-governmental organizations as-
sociated with transnational social and religious movements provide other
sources of authority that not only legitimate challenges to the existing
international order, but also suggest alternative conceptions of the bases
for future orders.43
In chapter 6, Ronnie Lipschutz and Cathleen Fogel draw upon
Lipschutz’s earlier work on non-governmental organizations as sources
of transnational civil societies44 to argue that NGOs function as private
authorities in the emerging privatization of environmental regulations.
Lipschutz and Fogel illustrate how private organizations serve as sources

of “eco-labeling” certification and establish standards of “sustainable
forestry” recognized by firms (p. 133, 134 below). Lipschutz and Fogel
illustrate the manner in which NGOs, as well as multi- and transna-
tional coalitions and alliances, corporations, and corporate associations
have taken upon themselves “normative, functional and instrumental
responsibilities.”
Provisionally, we can see at least three different ways in which private
authority is exercised by NGOs. First, there is the authority of the agenda-
setter. One might object that this is “power” granted to, or gleaned by,
certain privileged NGOs by virtue of the locations of their headquarters,
the placement of their primary officers, and/or their access to governmen-
tal decision-makers. However, this objection deals only with the lobbying
activities of a minority of NGOs. Further, this objection fails to recognize
that the success that some NGOs enjoy in these lobbying efforts is due
in no small part to their success in manipulating the choices and policy
preferences of average citizens at the grassroots level of organization. If
the perspectives and policy prescriptions of some NGOs did not enjoy
popular support, and the genuine popular legitimacy by which power
becomes authority, no lobbying success would be enjoyed in most states.
The second way in which private authority is exercised by NGOs is
by virtue of their authorship, or expertise. Many NGOs provide expert
advice as part of their effort to influence policy preferences. To the extent
that they are seen as credible providers of technical expertise or infor-
mation that is difficult to acquire, compile, organize, or analyze, they
may enjoy the authority that accompanies authorship. One good illustra-
tion of this is Amnesty International’s annual human rights report, which
amasses, organizes, and analyzes evidence of human rights violations in
remote, repressive, difficult-to-reach countries, as well as accessible and
ostensibly open and democratic ones.45
A third way in which private authority is exercised by NGOs is associ-
ated with their emancipatory and normatively progressive social agendas,
or their ostensible objectivity or neutrality as non-state actors. This is a
form of “moral authority.”46 For the purposes of our discussion, as con-
venient shorthand, we will refer to the authority that accrues to those with
expertise, as well as that which accrues to those who act in an emancipa-
tory or normatively progressive fashion as “moral authority.” However,
we will also apply the term to movements whose transcendental religious
ideas and aspirations may be deemed normatively regressive by those
reared in the culture of the secular democratic West, and /or may lead
them to acts of religious violence that are normatively repulsive to most
people. We do so because those social actors who generate transnational
religious movements are advancing a claim of transcendent moral autho-

rity as a justification for their actions and designs.
In this context Mark Juergensmeyer in chapter 7 provides an analysis
of the resurgence of private violence in the form of terrorism, particularly
the private violence of transnational religious networks. Juergensmeyer’s
contribution builds on his earlier work, which conceptualized the causal
significance of religious networks for authority relations in a national
context.47 Here, he examines the issue transnationally. In his earlier work
Juegensmeyer identified the rise of religious nationalism as a response
to the challenges of the post-Cold War world, and as an assault on
Enlightenment ideology and the secular political bases of national iden-
tity. Juergensmeyer sees these movements as a response to the weakening
political, ideological, and economic bases of the secular national state.48
Thus there are grounds for theorizing that these movements are an at-
tempt to invoke the private authority of transnational belief systems to
fill the ideological and political vacuum created by the delegitimation of
these state structures. Ironically, Juergensmeyer sees a resuscitation of
the declining ideology of nationalism by its ancient foe, religion, as an
unintended consequence of these efforts.
In chapter 7, Juergensmeyer reassesses the increasingly transnational
character of religious violence and retheorizes religious terrorism as the
public performance of violence, rather than merely as a symbolic act of
delegitimation of the secular national state. The state is delegitimated to
the extent that very public, destructive, and consequently highly visible
acts of terrorism demonstrate the inability of the secular national state to
protect the citizenry and, consistent with the requirements of Weberian
empirical statehood, to exercise a monopoly over the legitimate use of
physical force. Highly visible religious violence is, in this context, rel-
evant to the issue of private authority because it is a very clear public
demonstration of a highly “private” capacity for violence, with claims to
a higher authority than that of the state.
Juergensmeyer’s findings are fascinating, in part because they are based
largely upon primary source interviews with participants in acts of ter-
rorism, such as with the men serving sentences for convictions for the
1993 bombing of the World Trade Center in Manhattan. His inter-
views provide him with evidence that some transnational religious net-
works employ terrorist violence as public demonstrations of non-state
(private, in our lexicon) power. Had both towers of the World Trade
Center collapsed onto neighboring buildings rather than imploding, as
they did in the 2001 attacks, as many as 200,000 people might have lost
their lives. This figure is highly symbolic, as it is roughly the number
of people who lost their lives in the US atomic bombings of Hiroshima
and Nagasaki in 1945. In the ideology of the attackers, a loss of 200,000

American lives in the World Trade Center would constitute a symbolic
retribution, and restore the lost pride of marginalized people by attack-
ing a highly visible symbol of American power. In the anti-Zionist ide-
ology of this particular Islamic terrorist network, the choice of targets
was doubly symbolic as they viewed the World Trade Center as a cen-
ter of a Jewish financial conspiracy victimizing Arabs and adherents to
Islam.
There is a strongly visionary stance to these transnational movements.
They are predicated on epistemological foundations that are not merely
transnational but, in the view of their adherents, transcendent. Ramsey
Yousef, who is in prison for conspiring to bring down twelve American
airliners (and their passengers and crews) in a single day, is a mem-
ber of a vaguely transnational group with a distinctly transnational iden-
tity, who see themselves as part of a global confrontation of Islam with
“the infidel.” Juergensmeyer notes similarities in the Japanese cult, Aum
Shinrikyo. Osama Bin Laden, who remains highly sought by US author-
ities, serves as an example of a form of transnational religious terrorist-
entrepreneur, funding terrorist operations all over the globe that he does
not directly control. Juergensmeyer notes that even religious nationalist
groups (with an interest in imposing their regimes on specific territo-
ries) have transnational networks of support. Thus transnational religious
networks can serve as sources of private authority due to their capacity
to incite passionately committed, highly dramatic, and visible (however
destructive) social action on the part of globally far-flung subjects of their
authority.
Illicit authority
Chapters 8 and 9 explore the nature of private authority associated with
forms of organized violence. We refer to the form of private authority
exercised by mafias and mercenaries as “illicit” authority because the ac-
tivities of these groups violate domestic and international legal norms.
However, these groups often enjoy a legitimate social recognition to the
extent that they step into a power vacuum left by a weak state and provide
public goods that the state fails to provide. In chapter 8, Phil Williams
explores challenges to state authority by transnational criminal organiza-
tions (TCOs) in both the domestic and the international arenas. Several
states, not least Russia, appear helpless to collect adequate tax revenue
or stem endemic corruption that hinders the provision of social services
and the administration of the rule of law. Many functions that one would
expect the sovereign state to perform are instead executed by domestic

organized criminal associations, who may thereby legitimate themselves
in the eyes of a domestic populace as an alternative center of social or-
ganization. The inability of other states to discern where the government
begins and where the mafia ends in a state the size of Russia has its own
implications for the salience of private authority for international order.
Evidence that TCOs are developing strategic alliances to avoid domestic
and transnationally coordinated efforts to curtail their activities suggests
an even greater challenge to state authority, which bears further study.49
Williams’s chapter explores the challenge of TCOs to state authority in
this context.
In chapter 10, Bernedette Muthien and Ian Taylor provide an analysis
of the emergence of corporate mercenaries50 and “private” policing, and
consider the implications of these phenomena for shifting authority rela-
tions and the decline of state control over the means of violence.51 As pri-
vate actors acquire the resources and the motives to contract for security
services at home and abroad, for both defensive and offensive purposes,
they acquire the capacity to back “private authority” with physical force.
The implications of such developments for the Westphalian conception
of state sovereignty are sobering.
Phil Williams’s work on TCOs intersects with the work of both Kobrin
and Sassen in highly interesting and germane areas. His work is oriented
toward explaining the transnationalization of criminal organizations, and
he studies the covert side of social and organizational phenomena that are
more overtly evident in Kobrin’s work. Williams provides us with a study
of illicit, network-based, transnational criminal enterprises, in contrast to
Kobrin’s analysis of the global networks of wholly licit, transnational cor-
porate and financial enterprises (TNCs). Williams suggests that TCOs
share many characteristics and emulate many of the “business practices”
of their more legitimate TNC counterparts. The aim of TCOs is profit,
the same as TNCs, but their means is crime. They diversify their enter-
prises and their assets, just like TNC conglomerates. Colombian drug car-
tels have, for example, diversified from cocaine into heroin, and Williams
suggests that it becomes very easy to speak of the Cali drug cartel as the
world’s most successful transnational firm to the extent that their profit
margins and aggregate profits engender the title. Transnational criminal
organizations are engaged in the formation of strategic alliances in ways
that appear to emulate the recent strategies of TNCs.
Like Saskia Sassen, Williams emphasizes the role played by “global
cities,” which he portrays as breeding grounds for criminal cosmopoli-
tanism. Global cities are often embarkation points for immigrant
communities drawn to them by many of the negative, as well as positive,

externalities associated with the globalization process. These immigrant
communities, he suggests, are natural environments for the birth of ille-
gal enterprises, since they are often composed of marginalized people
who develop self-support mechanisms within their culturally isolated
communities by illicit means, if licit means are unavailable. Immigrant
and diaspora communities provide opportunities for both recruitment
and cover for these illicit activities. He reminds us that TCOs rely upon
the capacity of immigrant and diaspora communities to launder their
profits through a thriving global financial services system that is head-
quartered, as Sassen reminds us, in global cities.52 Thus, though TCOs
threaten the state capacities of certain countries, they scarcely constitute
a threat to the international financial system. Moreover, Williams sug-
gests that the relationships between TCOs and states are not uniformly
adversarial. He provides us with a taxonomy of the attitudes of states
toward TCOs, which appear to range from hostility and opposition, to
tacit acceptance and even active collusion. His taxonomy and analysis of
the relationships between TCOs and those states on the more permissive
end of this spectrum has important implications for the nature of the
emerging private authority of TCOs.
In their analysis of the resurgence of private political violence,
Bernedette Muthien and Ian Taylor examine the reappearance of merce-
naries and private armies. They have become increasingly conspicuous in
Africa, where problems of state capacity and state legitimacy have often
been most severe in the late twentieth century. Their account of the evi-
dent willingness of transnational market actors to back their designs with
private military force potentially provides us with a frightening glimpse
of a future characterized by the creeping substitution of the authority
of the sovereign state with that of private actors. This most graphic of
illustrations of the nascent emergence of private authority in security
affairs underscores the importance of examining the emergence of pri-
vate authority in international issue areas beyond the realm (however
important) of international political economy.
In the concluding chapter of this volume, chapter 11, we summarize
many of the most theoretically salient findings of our contributors. We
examine the sources and bases of market, moral, and illicit authority,
and we also generate a subtypology of each of the three major forms of
private authority discovered in the work of our contributors. We attempt
to provide preliminary responses to several of the questions raised in
this introductory essay, and conclude with discussions of the conditions
under which market authority, moral authority, and illicit authority might
be reversed, and the implications for future research.

1 Max Weber, “Politics as a Vocation,” in H. H. Gerth and C. Wright Mills
(eds.), From Max Weber: Essays in Sociology (London: Routledge & Kegan
Paul, 1948), pp. 77–78.
2 Michael Joseph Smith, Realist Thought from Weber to Kissinger (Baton Rouge
and London: Louisiana State University Press, 1986), p. 25.
3 Helen Milner, “The Assumption of Anarchy in International Relations: A
Critique,” Review of International Studies, 17 (1) (1991), 67–85.
4 Ian Hurd, “Legitimacy and Authority in International Politics,” International
Organization, 53 (2) (Spring 1999), 379–408.
5 Nicholas Onuf and Frank F. Clink, “Anarchy, Authority, and Rule,” Inter-
national Studies Quarterly, 33 (2) (1989), 149–73; Milner, “Assumption of
Anarchy”; and Michael E. Brown, Sean Lynn-Jones, and Steven E. Miller, The
Perils of Anarchy: Contemporary Realism and International Security (Cambridge,
Mass.: MIT Press, 1995).
6 Friedrich Kratochwil, Rules, Norms, and Decisions: On the Conditions of Practical
and Legal Reasoning in International Relations and Domestic Affairs (Cambridge:
Cambridge University Press, 1989), and James N. Rosenau and Ernst-Otto
Czempiel (eds.), Governance Without Government: Order and Change in World
Politics (Cambridge: Cambridge University Press, 1992).
7 Robert Keohane and Joseph Nye, Power and Interdependence (Boston: Little
Brown, 1977).
8 Hurd, “Legitimacy and Authority,” 381.
9 Leonard Krieger, “The Idea of Authority in the West,” American Historical
Review, 82 (2) (April 1977), 259.
10 R. B. Friedman, “On the Concept of Authority in Political Philosophy,” in
Joseph Raz (ed.), Authority (Washington Square, N.Y.: New York University
Press and Oxford: Basil Blackwell, 1990), p. 64.
11 Ibid.
12 A. Claire Cutler, “Locating ‘Authority’ in the Global Political Economy,”
International Studies Quarterly, 43 (1) (March 1999), 64.
13 Susan Strange, “Territory, State, Authority, and Economy: A New Realist
Ontology of Global Political Economy,” in Robert W. Cox (ed.), The New
Realisms: Perspectives on Multilateralism and World Order (Tokyo: United
Nations University Press, 1997), p. 9.
14 Hurd, “Legitimacy and Authority,” 381.
15 Strange, “Territory, State, Authority, and Economy,” p. 4.
16 Ibid., p. 11.
17 A. Claire Cutler, Virginia Haufler, and Tony Porter (eds.), Private Authority
in International Affairs (Albany, N.Y.: SUNY Press, 1999).
18 Cutler, Haufler, and Porter, “Private Authority and International Affairs,”
in Cutler, Haufler, and Porter, Private Authority and International Affairs, p. 13.
19 Cutler, “Locating ‘Authority’ in the Global Political Economy,” 62.
20 Louis W. Pauly, Who Elected the Bankers? Surveillance and Control in the World
Economy (Ithaca, N.Y.: Cornell University Press, 1997).
21 Arguments to this effect stem from analysts as diverse as the Marxists to
more mainstream classical and liberal political economists. See, for example,
Leo Panitch, “Rethinking the Role of the State in an Era of Globalization,”

in James H. Mittelman (ed.), Globalization: Critical Reflections. International
Political Economy Yearbook, vol. 9 (Boulder, Colo.: Lynne Rienner, 1996),
pp. 83–113; Thomas M. Callaghy, “Globalization and Marginalization: Debt
and the International Underclass,” Current History, 26 (613) (November 1997),
392–96; and Pauly, Who Elected the Bankers?
22 Louis W. Pauly and Simon Reich, “National Structures and Multinational
Corporate Behavior: Enduring Differences in the Age of Globalization,”
International Organization, 51 (1) (1997), 1–30.
23 Stephen Gill, “Globalization, Democratization, and the Politics of Indiffer-
ence,” in Mittelman, Globalization, pp. 205–28.
24 Robert Wade and Frank Veneroso, “The Asian Crisis: The High Debt Model
Versus the Wall Street–Treasury–IMF Complex,” New Left Review, 228
(March/April 1998), 3–24.
25 The salience of modern Westphalian sovereignty to the structure and to the
patterns and practices of international politics within the contemporary in-
ternational system go back at least as far as John Ruggie’s early critique of
Kenneth Waltz. See John Gerard Ruggie, “Continuity and Transformation
in the World Polity: Toward a Neorealist Synthesis,” World Politics, 35 (2)
( January 1983), 261–85.
26 See Cynthia Weber, Simulating Sovereignty: Intervention, the State and Symbolic
Exchange (Cambridge: Cambridge University Press, 1995); Jens Bartleson,
A Genealogy of Sovereignty (Cambridge: Cambridge University Press, 1995);
Thomas J. Biersteker and Cynthia Weber (eds.), State Sovereignty as Social
Construct (Cambridge: Cambridge University Press, 1996); and Rodney Bruce
Hall, National Collective Identity: Social Constructs and International Systems
(New York: Columbia University Press, 1999).
27 See Biersteker and Weber, State Sovereignty, and Hall, National Collective
Identity.
28 Note especially Krasner’s comparatively lonely, but unrepentantly structural-
ist argument: Stephen D. Krasner, Sovereignty: Organized Hypocrisy (Princeton,
N.J.: Princeton University Press, 1999).
29 See, for example, Louis W. Pauly, “Capital Mobility, State Autonomy, and
Political Legitimacy,” Journal of International Affairs, 48 (2) (Winter 1995),
369–88; Susan Strange, The Retreat of the State: The Diffusion of Power in
the World Economy (Cambridge: Cambridge University Press, 1996); Saskia
Sassen, Losing Control? Sovereignty in an Age of Globalization, 1995 Columbia
University Leonard Hastings Schoff Memorial Lectures (New York:
Columbia University Press, 1996), pp. 31–58; Mathew Horsman and Andrew
Marshall, After the Nation-State: Citizens, Tribalism and the New World Disorder
(London: Harper-Collins, 1994); Ethan B. Kapstein, “Workers and the World
Economy,” Foreign Affairs, 75 (3) (May/June 1996), 16–37.
30 See Robert Wade, “Globalization and Its Limits: Reports of the Death of the
National Economy Are Greatly Exaggerated,” in S. Berger and R. Dore (eds.),
National Diversity and Global Capitalism (Ithaca, N.Y.: Cornell University
Press, 1996), pp. 60–88.
31 Peter Evans, “The Eclipse of the State? Reflections on Stateness in an Era of
Globalization,” World Politics, 50 (1) (1997), 62–87.
32 Linda Weiss, The Myth of the Powerless State (Ithaca, N.Y.: Cornell University
Press, 1998); Stephan Haggard and Sylvia Maxfield, “The Political Economy
of Financial Internationalization in the Developing World,” International
Organization, 50 (1) (1996), 35–68; and Geoffrey Garrett, “Global Markets
and National Politics: Collision Course or Virtuous Circle?,” International
Organization, 52 (4) (Autumn 1998), 787–824.
33 Cutler, “Locating ‘Authority’ in the Global Political Economy,” 62–63.
34 Stephen J. Kobrin, “The Architecture of Globalization: State Sovereignty in a
Networked Global Economy,” in John Dunning (ed.), Governments,
Globalization and International Business (Oxford and New York: Oxford
University Press, 1997), p. 154.
35 For a penetrating analysis of the social tensions created by this tradeoff, see
Dani Rodrik, Has Globalization Gone Too Far? (Washington, D.C.: Institute
for International Economics, 1997).
36 Kobrin, “Architecture of Globalization,” p. 162.
37 Horsman and Marshall, After the Nation-State, p. 217.
38 See Pauly, “Capital Mobility, State Autonomy, and Political Legitimacy.”
39 See, for example, Charles Kindleberger, The World in Depression, 1929–1939
(Berkeley: University of California Press, 1986), and Timothy J. McKeown,
“Hegemonic Stability Theory and Nineteenth-Century Tariff Levels in
Europe,” International Organization, 37 (1) (Winter 1983), 73–91.
40 See Sassen, Losing Control?, pp. 36–39. Following T. H. Marshall’s notion of
the “social citizenship” of the welfare state, Sassen argues that, unlike civil
and political citizenship, social citizenship is under pressure by globalization
(ibid., p. 37). We argue that political citizenship may be under pressure as
well. See T. H. Marshall, The Right to Welfare and Other Essays (New York:
Free Press, 1981).
41 Horsman and Marshall, After the Nation-State, p. 261.
42 See especially Saskia Sassen, The Global City: New York, London, Tokyo (Prince-
ton, N.J.: Princeton University Press, 2001 [1991]), and Sassen, “Global
Financial Centers,” Foreign Affairs, 78 (1) (January/February 1999), 75–87.
43 For treatments of widely diverse transnational social movements, see Benjamin
Barber, Jihad vs. McWorld: How Globalism and Tribalism Are Reshaping the
World (New York: Ballantine Books, 1995); Arjun Appadurai, Modernity at
Large: Cultural Dimensions of Globalization (Minneapolis and London:
University of Minnesota Press, 1996); Mark Juergensmeyer, The New Cold
War? Religious Nationalism Confronts the Secular State (Berkeley: University of
California Press, 1993); Craig N. Murphy, “Seeing Women, Recognizing
Gender, Recasting International Relations,” International Organization, 50 (3)
(Summer 1996), 513–38.
44 See especially Ronnie D. Lipschutz, “Reconstructing World Politics: The
Emergence of Global Civil Society,” Millennium: Journal of International
Studies, 21 (3) (Winter 1992), 389–420, and Lipschutz with Judith Mayer,
Global Civil Society and Global Environmental Governance (Albany, N.Y.: SUNY
Press, 1996).
45 See, for example, Peter Willetts (ed.), “The Conscience of the World”: The
Influence of Non-Governmental Organizations in the UN System (Washington,
D.C.: Brookings Institution, 1996).
46 Rodney Bruce Hall, “Moral Authority as a Power Resource,” International

47 See Juergensmeyer, The New Cold War?
48 Mark Juergensmeyer, “The Worldwide Rise of Religious Nationalism,” Journal
of International Affairs, 50 (1) (Summer 1996), 1–20.
49 Phil Williams, “Transnational Criminal Organizations: Strategic Alliances,”
Washington Quarterly, 18 (Winter 1995), 57–72, and Williams, “Transnational
Criminal Organizations and International Security,” Survival, 36 (Spring
1994), 96–113.
50 See, for example, Simon Sheppard, “Foot Soldiers of the New World Order:
The Rise of the Corporate Military,” New Left Review, 228 (March/April
1998), 128–38.
51 Janice E. Thomson, Mercenaries, Pirates and Sovereigns (Princeton, N.J.:
Princeton University Press, 1996).
52 Note, for example, the recent evidence of penetration of Russian TCOs’
money laundering activities into one of the largest, best-capitalized transna-
tional banks headquartered in New York.
2 Private international regimes and
interfirm cooperation
A. Claire Cutler
This chapter focuses on the development of private international regimes

as institutionalized manifestations of private authority. Private interna-
tional regimes may, of course, emerge in a number of issue areas and
involve a multiplicity of non-state actors, as many of the chapters in this
book illustrate. However, the focus here is specifically on the emergence
of such regimes through the cooperation of firms, business and industry
associations, and other corporate actors. This focus is significant because
contemporary developments in domestic and global political economies
are enhancing the authority of private institutions, actors, and processes.
In many states, the privatization of government activities, the deregu-
lation of industries and sectors, increased reliance on market mecha-
nisms in general, and the delegation of regulatory authority to private
business associations and agencies are expanding the opportunities for
the emergence of private and self-regulatory regimes. Indeed, “[p]rivate
actors are increasingly engaged in authoritative decision-making that was
previously the prerogative of sovereign states.”1 Corporations, “singly
and jointly, construct a rich variety of institutional arrangements that
structure their behavior. Through these arrangements they can deploy a
form of private authority whose effects are important for understanding
not just the behavior of firms, but also for analyzing the state and its
policies.”2
The paper is less concerned with the nature of the relationship be-
tween private international regimes and states, although this is clearly a
challenging and pressing concern which is addressed more generally in
the concluding chapter. Rather, the main concern is to frame or to dis-
till private international regimes as instances of global governance relations
or of private international authority. This raises three sets of considera-
tions: analytical, theoretical, and normative. The first set relates to the
analytical task of identifying private international regimes as a subset of
the more general category of private international authority. Here I am
concerned with establishing the indices and scope of private interna-
tional authority, and clearly assume working definitions of both private
23
24 A. Claire Cutler
international authority and private international regimes. I am also con-

cerned with developing some sort of understanding of the incidence of
private international regimes and their nature and general character.
The second and third sets of concerns relate to the theoretical and
normative dimensions of private international regimes. They raise the
task of conceptualizing private international regimes as authoritative in-
stitutions and as manifestations of legitimate authority relations. This
is, perhaps, the most troubling exercise. There are major obstacles to
theorizing about private international authority in general, and private
international regimes in particular.3 Moreover, the normative implica-
tions of private authority are profoundly disturbing. Very basically, the
democratic, formalistic, and legalistic associations of authority with states
and the public sphere obscure the growing authority of private institu-
tions, actors, and processes. As a consequence, efforts to hold private in-
stitutions accountable in any democratic way are bound to flounder, for
that which goes unrecognized is difficult to regulate. Indeed, the move
of private authority to obscurity is at root an ideological move inspired
by the “liberal art of separation”4 that serves to isolate and insulate in-
creasing aspects of existence from public scrutiny and review. The legally
formalistic associations of authority with the state function ideologically
by depicting the world not as it is, but as it ought to be.5 Legal formalism
identifies state/public authority as the only legitimate authority, render-
ing non-state/private authority a theoretical and empirical impossibility.
As an ontological non sequitur, private authority is thus not part of the
discourse of responsible or accountable governance.
An adequate understanding of these obstacles and implications is ab-
solutely crucial to evaluating the possibility of reversing the trend toward
privatized authority, which is addressed in the conclusion to this chapter.
Indeed, this chapter argues that overcoming these theoretical obstacles
requires a critical examination of the conventional wisdom in the fields
of both domestic and international political and legal theories. It requires
moving beyond political theory and international theory as “problem-
solving” theories to embrace them as “critical” theories in the manner
contemplated by Robert Cox. Problem-solving theory “takes the world as
it finds it, with the prevailing social and power relationships and the insti-
tutions into which they are organized, as a given framework for action.”
It claims to be value-free, but Cox argues that it is in fact deeply ide-
ological because it takes the existing order as a given and in so doing
serves the sectional and class interests that are satisfied with that order.
In contrast, critical theory “stands apart from the prevailing order of the
world and asks how that order came about.” It reasons historically and
Private regimes and interfirm cooperation 25
dialectically and is concerned “not just with the past but with a con-
tinuing process of historical change.”6 Understanding the historical and
dialectical manner in which private international authority and private in-
ternational regimes emerge and develop provides important insight into
what appear to be rather contradictory trends. As a number of chapters
in this volume illustrate, forces of globalization that appear to be linked
to the emergence and operation of private international authority serve,
in some cases, to deterritorialize or delocalize authority relations, but in
other cases to territorialize and localize authority.7 The deterritorializing
tendency of market authority, for example, is emphasized in the chapters
by Saskia Sassen and Stephen Kobrin. In contrast, other incidences of
market authority remain firmly embedded in the territorial state, as the
chapter by Louis Pauly suggests. Critical theory assists in understanding
variations over time in different manifestations of private international
authority.
In addition, critical theory examines the material, institutional, and
ideational dimensions of private international authority, and provides un-
derstanding of the complex nature of its operation. The highly institution-
alized private international regimes that form the focus of this chapter are
thus to be differentiated from the more informal and even diffuse moral
authority of NGOs, as discussed in the chapter by Ronnie Lipschutz and
Cathleen Fogel, or indeed that exercised by religious terrorists, addressed
in Mark Juergensmeyer’s contribution.
Finally, critical theory is inspired by emancipatory goals – principal
objectives being the clarification of alternate world orders and the pro-
motion of change in social relations.8 This alerts us to the inescapably nor-
mative dimension of private international authority, which is highlighted
most clearly in the Lipschutz and Fogel chapter. The normative impli-
cations of illicit private international authority, addressed in the chapters
by Phil Williams and Bernadette Muthien and Ian Taylor, are significant.
Illicit private authority provides a profound challenge to democratic and
formalistic theorizations of authority.
This chapter seeks to develop our understanding of private interna-
tional authority by situating private international regimes as the most
institutionally developed form or instance of private international author-
ity. The discussion will first define private international regimes, identify
significant empirical examples, and offer a few insights into the reasons
for their proliferation. It will then turn to explore the theoretical and
normative dimensions of private international regimes, highlighting the
challenge that they and other forms of private international authority pose
for conventional understandings of authority.
26 A. Claire Cutler
Private international regimes and private

international authority
There is a prior interest which raises theoretical and analytical issues that
must be addressed before defining private international regimes. This
concerns whether it makes sense conceptually and theoretically to adopt
the regime framework developed for the analysis of interstate regimes
for the study of non-state regimes. This is a troubling question that
raises some of the central challenges to the theorization of private au-
thority that are considered in the next section. However, a brief review
of the nature and evolution of the analytical foundations of the concept
of “international regime” illustrates that there are no obvious barriers to
its adoption in the study of non-state authority.9
Paradoxically, regime analysis emerged as an analytical attempt to
address inadequacies in the then conventional approaches to interna-
tional organization, including their state-centricity and excessive legalism
and formalism. Indeed, regimes came to form a central analytical focus
for the study of international organization.10 Regimes also became part of
the conceptual framework for the developing field of international politi-
cal economy. There analysts such as Stephen Krasner, Robert Keohane,
Mark Zacher, Oran Young, and others adopted the regime concept as
a useful corrective to studies that neglected the role of non-state actors
in international relations.11 Some, such as Robert Keohane and Mark
Zacher, embraced the concept of regime robustly, and the next decade
and more witnessed a proliferation of regimes studies.12 While others,
such as Susan Strange, though critical of the way in which the state had
“colonized” the study of international relations, remained deeply skep-
tical about the political role of regime analysis,13 the analytical frame-
work of regimes came to form a central place in international relations
scholarship, at least in North America. As the field developed, so too
did the study of regimes. A number of European scholars embraced
the concept and contributed to the proliferation of regime studies and
of valuable cooperative theoretical and empirical analyses.14 However,
the promise of broadening the analytical net to include non-state actors,
particularly of the corporate kind, was not fulfilled.15 Regime analysis
became progressively more state-centric in focus as the role of corpo-
rations was filtered through the lens of state power.16 Regime analysis,
like the study of international organization and international political
economy, was “captured” by a neorealist synthesis of realism and ne-
oliberalism, becoming about as state-centric as neorealism.17 As Miles
Kahler notes, neoliberals had challenged the excessive state-centricity of
realism. However, “[n]eoliberalism was redefined away from complex
interdependence toward a state-centric version more compatible with

realism.”18
In addition, the analytical focus on regimes became more formalistic,
at least in the work of some leading regime theorists. Robert Keohane
defined international regimes as “institutions with explicit rules, agreed
upon by governments, that pertain to particular sets of issues in inter-
national relations.”19 The focus on states, explicit rules, and compliance
drew regime theory closer to its roots in formalistic and legalistic inter-
national law, factoring out attention to informal and ad hoc normative
arrangements. As Andrew Hurrell notes, the “apparently growing stress
on explicit, persistent, and connected sets of rules brings regime the-
ory and international law much closer together.”20 The focus on explicit
rules and institutional structures thus detracted from the analytical bite
of informal practices and loosely institutionalized norms and practices.21
The association of regimes with states, state power, and formal institu-
tions and rule structures might appear to be overwhelming, and is evident
in the general currency of certain theories. Hegemonic stability theory,
for example, associates international regimes with the provision of public
goods, which only governments/states are in the general habit of provid-
ing, and with institutionalized state responses to market imperfections
and failures.22 However, while the concept of regime is interpreted pre-
dominantly in state-centric and formalistic terms, it need not be. “[S]ets
of implicit or explicit principles, norms, rules, and decision-making pro-
cedures around which actors’ expectations converge in a given area of
international relations” can logically extend to the activities of business
associations, firms, cartels, and the like, whether formalized in explicit
rules and institutions or not.23 Indeed, one might begin by noting that
authority has both analytical and normative dimensions, and one might
draw upon the insights of regime analysis in developing the analysis of
these dimensions.24 This section addresses the “analytical element of how
authority is structured, how it operates, and how it is recognized and dis-
tinguished from other forms of influence,” while the next deals with the
normative aspects “of how authority is justified, who or what gives legit-
imacy, and why the authority of someone is accepted as such.”25 When
one differentiates between cooperation and authority, there is evidence to
suggest that corporations often cooperate, but without a sense of obliga-
tion or duty.26 “Authority requires a basis in trust rather than calculation
of immediate benefit, and therefore cooperation must involve the devel-
opment of habits, norms, rules, and shared expectations – cooperation
must be institutionalized.”27 A critical factor is that participants regard
the rules and practices to be obligatory. The obligatory element is in
turn related to acceptance of the legitimacy of an authority, as well as
28 A. Claire Cutler
a general sense of the efficacy of authority. Legitimacy involves the re-

spect accorded “an authority,” such as a specialist, a scholar, or an expert
whose authority derives from specialized knowledge and practices that
render such knowledge acceptable, and appropriate, as authoritative. It
also involves the respect accorded those “in authority,” such as political
leaders, generals, or representatives who possess an explicit or implicit
grant of authority from the state.28 Efficacy involves general compliance
with rules and practices.29
Moreover, to be authoritative, cooperation must be institutionalized.
However, the degree of institutionalization is highly variable. Empirical
studies reveal a high degree of variation in the scope and depth of in-
stitutionalization of private regulatory arrangements. Six general types
of cooperative arrangements may be identified as authoritative arrange-
ments, both in terms of their acceptance as legitimate by the participants
and in terms of the latter’s general compliance with their precepts. They
are organized in terms of increasing degrees of institutionalization, sug-
gesting that interfirm cooperation moves in a linear fashion from low to
high degrees of institutionalization. However, this is not necessarily the
case. Nor is there necessarily a relationship between the degree of institu-
tionalization and the strength of the cooperative arrangements. The types
of cooperative arrangements may be delineated as follows:
1. Informal industry norms and practices: This is the loosest form of inter-
firm cooperation, which often evolves through repeated practices in
industries and firms that acquire authority over time. The tacit under-
standing that emerged in the 1960s in the Eurobond market restricting
issuers to blue-chip companies or to governments is one such example.
There are other examples in the emergence of international commer-
cial law.
2. Coordination service firms: These are firms that operate to coordinate
the behaviour of other firms, like multinational law, accounting, man-
agement, and insurance firms, stock exchanges, debt-rating firms, and
financial clearinghouses. These firms often operate on the basis of rules
and practices established by business associations, which are discussed
below.
3. Production alliances, subcontractor relationships, and complementary activ-
ities: Strategic partnerships, joint ventures, and networks are identified
as three types of production alliances. They involve arrangements be-
tween firms that would otherwise compete with each other, but that de-
cide to cooperate in the joint production of goods or services. Networks
comprise extensive and complex subcontractor relationships among
firms. These are increasingly common today. A good example is the
way in which Nike Inc. is organized on the basis of subcontracted

facilities.
4. Cartels: Cartels are formal and informal arrangements between pro-
ducers to coordinate their output and prices. Cartels are certainly not
novel arrangements and bear likeness to production alliances. How-
ever, production alliances are regarded as generally legitimate, while
cartels are censured by antitrust legislation. The maritime transport
industry has long been regulated by cartels.
5. Business associations: Corporations often cooperate through the forma-
tion of business and industry associations, which today often operate
transnationally. Such organizations may operate as self-regulatory as-
sociations, developing norms and procedures that bind their members.
They also may operate as representative associations, acting on behalf
of members in their dealings with governments and like. Business as-
sociations, like the International Chamber of Commerce, are an im-
portant source of norms and practices, many of which may evolve into
rules of customary international law.
6. Private international regimes: A private international regime is defined
as “an integrated complex of formal and informal institutions that is a
source of governance for an economic issue area as a whole.”30
Private international regimes differ from the other types of private cor-
porate authority identified above by the pervasiveness and breadth of
their activities. They may also incorporate other types of private authority.
Private international regimes may be created by “negotiation and inter-
action among firms within a particular industry sector or issue area, and
generally incorporate a number of business associations, both national
and international. They formulate rules and procedures for dealing
with conflicts among participants, and between participants and their
customers.”31
Private international regimes are thus important forms of interfirm
cooperation, embodying the most extensive institutionalization of rules
and procedures governing regime members and, in some instances, non-
members as well. “The interfirm cooperation represented in international
regimes operates on multiple levels in complex ways, and often involves
extensive interaction and cooperation with the state. Indeed, one of the
important analytical goals in studying private international regimes is to
understand the degree to which the private actors in a regime are in-
dependent of the public ones.”32 In addition, hierarchical integration in
particular industries may be a significant source of private authority and
could be used as a measure of institutionalization itself. For example, in-
formal industry practices may be developed by coordination service firms
30 A. Claire Cutler
and later be adopted by industry and trade associations. They may also
be adopted by and enforced by states in response to the representations of
self-regulatory business organizations. Clearly, this sort of linear progres-
sion is not characteristic of all sectors, industries, or issue areas, and an
important analytical concern is identifying variations in the integration
and institutionalization of private authority. A related concern involves
deciding when looser forms of interfirm cooperation may be regarded as
having crystallized into a private international regime.33
The concept of private international regime has been fruitfully used to
analyze the regulation of the internet, the international minerals indus-
try, industrial production standards setting, the regulation of intellectual
property, the insurance industry, and the maritime transport industry.34
In addition, while not explicitly identified as private international regimes,
issue areas including the early cotton industry, cartelized industries in
the period between the two world wars, and debt-rating industries might
also constitute private international regimes. These studies illustrate that
many private regimes rely on informal norms and practices. Moreover,
they suggest that, “because there is no objective criterion that can estab-
lish a required threshold at which private institutions are comprehensive
enough to be considered regimes, their existence is often difficult to
establish irrefutably.”35
A good empirical example of a private international regime is the
transnational merchant law regime.36 Known variously as the modern law
merchant regime, transnational commercial law, and the law of private in-
ternational trade, the regime governs international commercial relations
of a private nature.37 It has been in existence for over a millennium, al-
though it has taken very different institutional forms over its history. The
medieval law merchant order was a private, self-regulatory regime that
operated outside local legal systems and political economies. Medieval
merchants devised laws through private means and enforced them in pri-
vate merchant courts that were independent of local legal systems. With
the emergence of states, first in their mercantilist and later in their capital-
ist formations, the merchant order disappeared as an autonomous legal
system as its laws and courts were incorporated into national legal and
judicial systems. There international commercial relations became jurid-
ified, as states sought to systematize and rationalize international com-
mercial relations.38 Today, in a curious twist of Weberian state authority,
the juridification of international commercial relations is intensifying,
but at the hands of predominantly non-state, corporate actors through
their exercises of private authority. The modern law merchant regime
forms a highly institutionalized order in which both public and private au-
thorities interact to create and enforce international commercial laws.39
Significantly, merchant autonomy over law creation and over interna-

tional commercial arbitration (the latter is also addressed in the Sassen
paper) is creating a highly privatized legal order that delocalizes and
deterritorializes commercial transactions and law. However, states re-
main intimately involved in the enforcement of international commer-
cial agreements, serving to relocalize and reterritorialize the transac-
tions at the point of dispute settlement. This curious mix of private and
public authority, which operates to delocalize/deterritorialize and relo-
calize/reterritorialize international commercial relations, provides an ex-
cellent illustration of the dialectical operation of a private international
regime.
Other examples of private international regimes may be found in the
dispute settlement orders emerging under the General Agreement on
Tariffs and Trade/World Trade Organization, the Canada–US Free Trade
Agreement, and the North American Free Trade Agreement.40 In each
case, privatized international commercial arbitration has replaced the ad-
judication of international commercial disputes in national courts of law.
The operation of these regimes centers around multinational law firms
which, as “merchants of norms,” exercise profound moral authority, in
addition to market authority through their monopoly of privatized dispute
settlement processes.41 The international commercial arbitration world
operates like a private club, the entry to which is limited to those schooled
in Western legal science and which perpetuates a normative regulatory or-
der that privileges neoliberal market discipline. Similar privatized regimes
are emerging in the fields of taxation and accounting, suggesting that the
expansion of privatized authority is an ongoing process.42
In seeking to explain the emergence of private international regimes,
analysts have focused on market-based explanations, drawing upon ef-
ficiency incentives, transaction cost analysis, and public goods theory.43
For example, the emergence of the law merchant order is explained by
some as comprising institutional responses to the transaction and in-
formation costs and insecurity experienced by traders engaging in trade
over wide geographical regions.44 Other, power-based explanations of
the emergence of private international regimes focus on the regulatory
influence of firms dominating markets and issue areas.45 More historical
explanations focus on the significance of broader trends like globalization,
rapid technological change, and the expansion of markets in enhancing
the influence of corporate actors.46
These examples indicate that interfirm cooperation is increasingly tak-
ing on the “mantle of authority”47 as the contraction of government au-
thority and the expansion of private regulatory authority are generally
accepted by societies. The apparent expansion of private international
32 A. Claire Cutler
regimes reflects a changing balance between public and private authority

with broader implications of a normative and ideological nature, to which
I will now turn.
Theorizing private international regimes

In positing that interfirm cooperation is increasingly “taking on the man-
tle of authority,” I am arguing that firms are basically functioning like
governments. This raises both theoretical and normative concerns. First,
it raises major issues for democratic and representative theories of gov-
ernance. Indeed, as mentioned at the outset, there are significant theo-
retical obstacles to conceptualizing private authority, which clearly apply
to private international regimes as well. Liberal theories of the state and
of international law associate political authority with the public realm
of government.48 Only public authorities are entitled or empowered to
prescribe behavior for others because only public authorities are account-
able through political institutions. Private entities, such as corporations
or business associations, are not entitled to act authoritatively for the
public, because they are not authorized by society and are thus not
subject to mechanisms of political accountability. Indeed, their account-
ability (legally and financially) is to their private members. Thus, under
democratic theory, only elected representatives and their delegates may
function authoritatively in prescribing and proscribing behavior.
Similarly, under liberal theories of international law, the only legiti-
mate “subjects” of the law are states and their designated representatives.
This means that only states and their designates may initiate claims under
international law and be the subject of legal rights and duties.49 Corpo-
rate liability exists only as a derivative of state liability under the legal
doctrine of state responsibility.50 Corporate personality is thus filtered
through the persona of the state. However, this poses major problems of
ensuring accountability for corporate actions, a concern of growing sig-
nificance in the areas of environmental damage and injury to consumers
from faulty or defective products sold in countries with inadequate con-
sumer protection laws. States are often unwilling to assume responsibility
for the actions of corporations, particularly if the latter can disclaim li-
ability for the actions of subsidiaries doing business abroad. Moreover,
it is increasingly more difficult to determine corporate nationality and to
identify the appropriate legal jurisdiction to which to attribute responsi-
bility in cases of transnational corporations the operations, holdings, and
directorships of which are widely dispersed. These factors are effectively
rendering transnational corporations and their actions “invisible” under
international law.51
The attribution of public functions to private actors directly challenges

democratic and liberal theories of governance and law. Indeed, to impute
political authority and accountability to corporate action “would be to
turn representative democracy on its head.”52 It threatens to undo “the
liberal art of separation” that underlies separations between state and
civil society; public and private; government and market; politics and
economics.53 However, the normative statement that only duly elected
and representative governments “ought” to be capable of exercising po-
litical authority must not be confused with the empirical fact that corpo-
rations “are” increasingly functioning authoritatively in ruling themselves
and others:
[t]his obstacle [the “public” nature of authority] is only convincing, however,

if one accepts that the normative statement that private power “ought” not be
regarded as legitimate and binding establishes the a priori validity of the empirical
statement that private power “is” in fact not regarded as legitimate and binding.
The public dimension of authority is only an obstacle if one accepts that private
power does not in fact operate in an obligatory way.54
Formalism thus threatens to obscure the actuality of private authority.

Moreover, while imputing “public” authority to “private” actors may
well threaten the conflation of the public and private domains and thus
undermine central tenets of liberal political theory, some of the most
interesting and innovative studies of international regimes have had no
difficulty in casting their analytical nets so as to catch the activities of
private actors.55 This suggests that there is a growing asymmetry between
the theory and the practice of international relations: the theory makes
an impossibility of private authority and private international regimes,
while the activities of non-state actors grow increasingly authoritative.
This asymmetry is not new to international law. Major ruptures of the
political order are often only later reflected in legal theories, as in the
shift from the medieval to the modern and then postmodern political
economies.56 Indeed, a source of innovation in legal theory comes from
changing practices of the participants, states or otherwise. Today this
asymmetry is a reflection of deeper processes of globalization at work
that are producing a disengagement of law and state and enhancing the
authority of non-state authority more generally. As one legal analyst notes,
“[i]n so far as our stock of theories of law assume that municipal legal
systems are self-contained or that public international law is concerned
solely with external relations between states, such theories just do not
fit the modern facts.”57 The proliferation of transnational, regional, and
nascent legal orderings reflects “new kinds of legal order” linked together
by one theme – “the disengagement of law and state.”58
34 A. Claire Cutler
The erosion of the public/private distinction also raises normative con-

cerns. The question here is whether private interests ought to be the
yardstick for international regimes. There is nothing natural, organic, in-
evitable, nor inherently meaningful in the distinction between the public
and private spheres. In both politics and law they emerged as part of the
analytical foundations of the bourgeois state and political economy and
owe their currency to dominant corporate and class interests.59 As such,
they function ideologically and instrumentally to advance the interests of
corporate capital within states and the interests of transnational capital
between and among states. For example, private authority in the maritime
transport industry, in addition to structuring commercial expectations
and actions, “also operates politically to ensure that certain activities do
not engage public regulation, scrutiny, and review. Private protectionism
in the form of maritime cartels and private associations ensure limited
entry to those who are not members of the maritime ‘club’ by creating
‘invisible’ barriers to entry. Indeed, the distributional consequences of
rules that purport to operate in the common interests of providing greater
certainty in transactions . . . are rendered invisible by their private and,
hence, ‘nonauthoritative’ origin.”60 The maritime transport regime is a
private international regime that privileges the interests of transnational
shipping, insurance, and financial industries and preserves the interests
of the most powerful maritime states. It thus gives rise to troubling nor-
mative implications that are only obscured by liberal legal and political
fictions surrounding the properly “public” nature of authority.
However, while the concepts of private authority and private regimes
raise important normative concerns, they do provide a useful correc-
tive to excessively formalistic approaches to the study of international
relations. They have an advantage that is particularly relevant to under-
standing the contemporary transformations associated with globalization.
In focusing on informal and often only loosely institutionalized forms
of governance, the concept of private authority is able to comprehend
certain fundamental changes in legal ordering that are associated with
the deepening of neoliberal discipline more generally. The privileging of
private ordering and self-regulatory arrangements among corporations
through autonomous processes of dispute resolution and the private ar-
bitration of trade and commercial disputes, through special corporate tax
arrangements, and through increasingly delocalized financial relations is
minimizing the development of explicit rules of law and enhancing the
influence of private, ad hoc, and discretionary practices. This is working a
revolution in our notion of the “rule of law” and rendering the analytical
focus on explicit rules and institutions highly formalistic, if not irrelevant.
As William Scheuerman argues, both a unifying corporate elite and the
compression of time and space are obviating the need for explicit, pre-
dictable, and fixed legal rules.61 Instead, the corporate world wants and
is generating private, ad hoc, and discretionary standards. No longer are
many transactions complicated by the distances of space and the lapse
of time. Simultaneous transactions thus narrow the need for fixed rules,
while the unity provided by a uniform legal culture continues to pro-
vide an element of stability in expectations. The preference today among
commercial actors for “soft law” rather than “hard law” reflects this same
trend in the transformation in the “rule of law” and the creation of a more
permissive rule structure that permits cheating when necessary.62 Indeed
the modern law merchant regime operates to globalize both highly institu-
tionalized authority and the moral authority of marketized and privatized
legal regulation.
The concepts of private authority and private regimes can thus be
very powerful analytically, theoretically, and ideologically. Analytically,
they “render visible the activities of transnational corporations, business
associations, and organizations that structure commercial activity and
determine outcomes in terms of controlling market access and market
shares . . . and regulating the entire process of transacting.”63 Theoreti-
cally, they assist in clarifying the processes driving the generation of global
authority relations. Ideologically, they assist in revealing the private inter-
ests being served by political orders and legal regimes and raise the vexing
problem and challenge of enhancing corporate accountability, reminding
us that “[t]heory is always for someone and for some purpose.”64
The investigation of these purposes in the various forms that private
authority takes is a profound challenge and is inextricably linked to is-
sues of legitimacy. Arguably, the authority exercised by corporations and
markets is easier to accept in cases in which one detects the devolu-
tion, delegation, or even the silent permission of governmental author-
ities. In privatizing industries, services, and sectors, governments may
be silently complicit in the occupation of the field by private corpo-
rate or market authority. Clearly, the global cities Saskia Sassen ana-
lyzes need the support of a governmental framework in order to survive,
suggesting that the dialectic between deterritorializing and reterritorial-
izing authority varies over time. Moreover, as the chapter by Louis Pauly
suggests, governments might be quite prepared to reoccupy the field if
they deem it necessary. However, when one considers other forms of
private authority, it becomes more difficult to reconcile the infusion of
private ordering into public domains or issue areas. Arguably, the moral
authority of emancipatory NGOs, addressed in the chapter by Ronnie
Lipschutz and Cathleen Fogel, can still be accommodated as exceptions
to the conventional notions of the legitimacy of public and state-based
36 A. Claire Cutler
international authority. However, as one moves away from the legal into
the margin of the legal or the domain of the illegal, legitimacy problems
become more acute. The moral authority of religious terrorists, addressed
in the chapter by Mark Juergensmeyer, pushes beyond conventional no-
tions of legitimacy, as too do the private armies discussed by Bernadette
Muthien and Ian Taylor. Clearly, overtly illegal authority, like that of the
mafia addressed by Phil Williams, poses the most significant challenge
to the legitimacy of private authority. If private corporate authority turns
representative democracy on its head, illicit authority threatens to empty
it of meaning. Such is the most extreme challenge of private international
authority.

1 A. Claire Cutler, Virginia Haufler, and Tony Porter, “Private Authority and
International Affairs,” in A. Claire Cutler, Virginia Haufler, and Tony Porter
(eds.), Private Authority and International Affairs (Albany, N.Y.: SUNY Press,
1999), p. 16.
2 A. Claire Cutler, Virginia Haufler, and Tony Porter, “The Contours and
Significance of Private Authority in International Affairs,” in Cutler, Haufler,
and Porter, Private Authority and International Affairs, p. 333.
3 See ibid., pp. 365–69, and A. Claire Cutler, “Locating ‘Authority’ in the Global
Political Economy,” International Studies Quarterly, 43 (1) (March 1999), 59–81.
4 Michael Walzer, “Liberalism and the Art of Separation,” Political Theory, 12
(3) (1984), 315–30.
5 See Judith Shklar, Legalism (Cambridge, Mass.: Harvard University Press,
1964).
6 The now familiar distinction is made by Robert Cox in “Social Forces, States,
and World Orders: Beyond International Relations Theory,” in Cox with
Timothy Sinclair, Approaches to World Order (Cambridge: Cambridge
University Press, 1996), pp. 88–89.
7 For further discussion of the contradictory nature of forces of globalization on
the balance in relations between state and society, see Anthony Giddens, The
Consequences of Modernity (Cambridge: Polity Press, 1990); Frederic Jameson,
Postmodernism or the Cultural Logic of Late Capitalism (Durham: Duke University
Press, 1991); and David Harvey, The Condition of Postmodernity: An Enquiry
into the Origins of Cultural Change (Cambridge, Mass., and Oxford: Blackwell,
1990).
8 For more on the emancipatory nature of critical theory, see Andrew Linklater,
“The Question of the Next Stage in International Relations Theory: A Critical-
Theoretical Point of View,” Millennium: Journal of International Studies, 21 (1)
(1992), 77–98, and Mark Hoffman, “Critical Theory and the Inter-Paradigm
Debate,” Millennium: Journal of International Studies, 16 (2) (1987), 231–49.
9 When Virginia Haufler, Tony Porter, and I first began the project on Private
Authority and International Affairs, we in fact defined it as a study of private
international regimes. However, our first workshop revealed that the analyt-
ical focus on regimes was simply too narrow to capture the complex, rich,
and variable types of the activities that ordered the corporate world. Most
participants were dissatisfied with what they regarded as regime analysis’s ex-
cessive preoccupation with the state. As a result, we broadened our focus to
that of private international authority in order to capture the phenomenon of
non-state authority and its tremendously varied manifestations.
10 For further discussion of the analytical foundations of regime analysis that
dates from that time, see Friedrich Kratochwil and John G. Ruggie, “Inter-
national Organization: A State of the Art on the Art of the State,” International
Organization, 40 (1986), 753–75. For a less positive view of regime analysis in
that same volume, see Martin Rochester, “The Rise and Fall of International
Organization as a Field of Study,” International Organization, 40 (1986), 777–
813. For a contemporary assessment of the contribution of regime analysis to
the study of international organization, see Rochester, “The United Nations
in the New World Order: Reviving the Theory and Practice of International
Organization,” in Charles Kegley (ed.), Controversies in International Relations
Theory: Realism and the Neoliberal Challenge (New York: St. Martin’s Press,
1995), pp. 199–222.
11 This is not intended to be a literature review of regimes theory. However, the
classic originating text is Stephen Krasner’s edited volume on International
Regimes (Ithaca, N.Y.: Cornell University Press, 1983), which was a special
issue of International Organization. It included articles by a number of
authors who went on to develop regimes theory as the analytical foundation
for international political economy.
12 Robert O. Keohane, After Hegemony: Cooperation and Discord in the World
Political Economy (Princeton: Princeton University Press, 1984); Mark W.
Zacher with Brent Sutton, Governing Global Networks: International Regimes
for Transportation and Communications (Cambridge: Cambridge University
Press, 1996); Thomas Risse-Kappen (ed.), Bringing Transnational Relations
Back In: Non-State Actors, Domestic Structures and International Institutions
(Cambridge: Cambridge University Press, 1995); Volker Rittberger with Peter
Mayer (eds.), Regime Theory and International Relations (Oxford: Clarendon
Press, 1993).
13 Strange, “Cave! Hic dragones: A Critique of Regime Analysis,” in Krasner,
International Regimes, pp. 337–54.
14 See Andreas Hasenclever, Peter Mayer, and Volker Rittberger, Theories of
International Regimes (Cambridge: Cambridge University Press, 1997), and
M. A. Levy, O. R. Young, and M. Zürn, “The Study of International Regimes,”
European Journal of International Relations, 3 (1) (1995), 267–330.
15 See Virginia Haufler, “Crossing the Boundary Between Public and Private:
International Regimes and Non-State Actors,” in Rittberger with Mayer,
Regime Theory and International Relations, pp. 94–111, for the theory’s neglect
of corporate actors and authority.
16 I deal with this matter more fully in “Private Authority in International Trade
Relations: The Case of Maritime Transport,” in Cutler, Haufler, and Porter,
Private Authority and International Affairs, pp. 283–329. See also Stephen
38 A. Claire Cutler
Krasner, “Power Politics, Institutions, and Transnational Relations,” in Risse-

Kappen, Bringing Transnational Relations Back In, p. 279, for the conditioning
role of the state.
17 Miles Kahler, “Inventing International Relations: International Relations
Theory After 1945,” in Michael W. Doyle and G. John Ikenberry (eds.), New
Thinking in International Relations Theory (Boulder, Colo.: Westview Press,
1997), p. 36.
18 Ibid., p. 35.
19 Keohane, “Neoliberal Institutionalism: A Perspective on World Politics,” in
R. O. Keohane, International Institutions and State Power: Essays in Interna-
tional Relations Theory (Boulder, Colo.: Westview Press, 1989), p. 4. For a
very good summary of debates over the definition of international regimes
and the benefits and costs of different versions, see Hasenclever, Mayer, and
Rittberger, Theories of International Regimes, ch. 1.
20 Hurrell, “International Society and the Study of Regimes: A Reflective Ap-
proach,” in Rittberger with Mayer, Regime Theory and International Relations,
p. 54. Also, for the view that international regimes and international law have
much in common, see A. Claire Cutler, “The ‘Grotian Tradition’ in Inter-
national Relations,” Review of International Studies, 17 (1991), 41–65, and
Robert J. Beck, Anthony C. Arend, and Robert D. Vander Lugt, International
Rules: Approaches from International Law and International Relations (New York
and Oxford: Oxford University Press, 1996), ch. 7.
21 It is noteworthy that regime theorists of a more constructivist bent offered
the promise of a less formalistic approach. Certainly the work of Oran Young,
Friedrich Kratochwil, and Alexander Wendt is notable in this regard. How-
ever, the focus remained very much on states. For a good review of con-
structivist approaches and a useful bibliography, see Hasenclever, Mayer, and
Rittberger, Theories of International Regimes, ch. 5.
22 But see Haufler, “Crossing the Boundary Between Public and Private,” and
Adrienne Héritier (ed.), Common Goods: Reinventing European and Interna-
tional Governance (Boulder, Colo.: Rowman & Littlefield, 2002), for examples
of private actors providing public goods.
23 Stephen Krasner, “Structural Causes and Regime Consequences: Regimes
as Intervening Variable,” in Krasner, International Regimes, p. 2.
p. 5, drawing upon Stephen Lukes, “Perspectives on Authority,” in Joseph
Raz (ed.), Authority (Washington Square, N.Y.: New York University Press
and Oxford: Basil Blackwell, 1990), pp. 203–17.
p. 5.
26 See Robert O. Keohane, “International Institutions: Two Approaches,” in
Keohane, International Institutions and State Power, pp. 158–79, for the dis-
tinction between regime-governed behaviour and cooperation.
27 Cutler, Haufler, and Porter, “Contours and Significance of Private Authority,”
pp. 334–35.
28 For the distinction between “an authority” and those “in authority,” see
R. B. Friedman, “On the Concept of Authority in Political Philosophy,” in
Raz, Authority, p. 79.
29 These matters are developed more fully in Cutler, Haufler, and Porter, “Con-
tours and Significance of Private Authority,” pp. 362–65.
p. 13.
31 Ibid., p. 14.
32 Ibid.
33 Not unlike how the practices of actors can over time crystallize into customary
international law. See Peter Malanczuk (ed.), Akehurst’s Modern Introduction
to International Law, 7th edn. revised (London and New York: Routledge,
1997), ch. 3, for the variety of indicators used to determine if a practice has
attained the status of law.
34 These, like the six categories discussed above, are all examples taken from
Cutler, Haufler, and Porter, Private Authority and International Affairs.
p. 355.
36 See A. Claire Cutler, Private Power and Global Authority: Transnational Mer-
chant Law and the Global Political Economy (Cambridge: Cambridge University
Press, forthcoming); Cutler, “Global Capitalism and Liberal Myths: Dispute
Settlement in Private International Trade Relations,” Millennium: Journal of
International Studies, 24 (3) (Winter 1995), 377–97.
37 See generally Norbert Horn and Clive Schmitthoff (eds.), The Transnational
Law of International Commercial Transactions (Deventer, Netherlands: Kluwer,
1982).
38 See Cutler, Private Power and Global Authority, and Cutler, “The Privatization
of Global Governance and the New Law Merchant,” in Héritier, Common
Goods, where juridification is defined as the utilization of law to legitimate
increasingly more claims to authority coming from both state and non-state
actors.
39 See A. Claire Cutler, “Public Meets Private: The International Unification
and Harmonization of Private International Trade Law,” Global Society, 13
(1) (1999), 25–48.
40 See International Organization, Special Issue: The Legalization of World Pol-
itics, 54 (3) (Summer 2000); A. Claire Cutler, “Globalization, Law, and
Transnational Corporations: A Deepening of Market Discipline,” in Theodore
Cohn, Stephen McBride, and David Wiseman (eds.), Power in the Global
Era: Grounding Globalization (Basingstoke: Macmillan, 2000), pp. 53–66; and
William Scheuerman, “Economic Globalization and the Rule of Law,” Con-
stellations: An International Journal of Critical and Democratic Theory, 6 (1)
(March 1999), 3–25.
41 Yves Dezalay and Bryant Garth, Dealing in Virtue: International Commercial
Arbitration and the Construction of a Transnational Legal Order (Chicago and
London: University of Chicago Press, 1996).
42 See Sol Picciotto and Ruth Mayne (eds.), Regulating International Business:
Beyond Liberalization (Houndmills and Basingstoke: Macmillan, 1999); and
William Bratton, Joseph McCahery, Sol Picciotto, and Colin Scott (eds.),
International Regulatory Competition and Coordination: Perspectives on Economic
Regulation in Europe and in the United States (Oxford: Clarendon Press,
1996).
40 A. Claire Cutler
43 See Cutler, Haufler, and Porter, Private Authority and International Affairs.
This analysis bears some likeness to the distinctions between interest-based
and power-based theories of international regimes identified by Hasenclever,
Mayer, and Rittberger, Theories of International Regimes.
44 Paul Milgrom, Douglass North, and Barry Weingast, “The Role of Institu-
tions in the Revival of Trade: The Law Merchant, Private Judges, and the
Champagne Fairs,” Economics and Politics, 2 (1) (1990), 1–23.
45 This is part of the explanation for the emergence of international commercial
arbitration. See Dezalay and Garth, Dealing in Virtue.
46 The chapters in Cutler, Haufler, and Porter, Private Authority and Interna-
tional Affairs, illustrate the validity of all three types of explanations. Indeed,
variation across issue areas and industries precluded drawing any overall con-
clusions as to the relative importance of the three sets of considerations.
p. 22.
48 Cutler, “Locating ‘Authority’ in the Global Political Economy.”
49 See A. Claire Cutler, “Critical Reflections on Westphalian Assumptions of
International Law and Organization: A Crisis of Legitimacy,” Review of Inter-
national Studies, 27 (2) (2001), 133–50.
50 See Cutler, “Globalization, Law, and Transnational Corporations.”
51 Fleur Johns, “The Invisibility of the Transnational Corporation: An Analysis
of International Law and Legal Theory,” Melbourne University Law Review,
19 (1994), 893–921.
52 Cutler, “Private Authority in International Trade Relations,” p. 299.
53 Walzer, “Liberalism and the Art of Separation.”
p. 367.
55 See Ronald B. Mitchell, “Sources of Transparency: Information Systems in
International Regimes,” International Studies Quarterly, 42 (1998), 109–30,
and his references to the self-reporting activities of private corporations in
different substantive areas.
56 See Cutler, “Critical Reflections.”
57 William Twining, “Globalization and Legal Theory: Some Local Implica-
tions,” Current Legal Problems, 49 (1996), 7.
58 Ibid., 8–9. See also Boaventura de Sousa Santos, Toward a New Common Sense:
Law, Science and Politics in the Paradigmatic Transition (New York and London:
Routledge, 1995), on the plurality of legal orders operating subnationally,
locally, nationally, and transnationally in the world today.
59 See Cutler, “Global Capitalism and Liberal Myths”; and Cutler, “Artifice,
Ideology, and Paradox: The Public/Private Distinction in International Law,”
Review of International Political Economy, 4 (2) (1997), 261–85.
61 See Scheuerman, “Economic Globalization and the Rule of Law.”
62 For further development of these trends and the distinction between hard and
soft law and for the unifying influence of a global “mercatocracy” or merchant
class and a global business culture, see Cutler, “Public Meets Private.”
64 Cox, “Social Forces,” p. 87.
Part II
Market authority: globalization

and “globaloney”
3 Economic governance in an electronically
networked global economy
Stephen J. Kobrin
Geographical space as a source of explanation affects all

historical realities, all spatially defined phenomena; states,
societies, cultures, and economies.1
In the Westphalian state system the basic unit of economic governance is

the national market defined, as is the sovereign state, in terms of mutu-
ally exclusive geographic jurisdiction.2 Economic governance – attempts
to exert authority over economies and economic actors – is exercised
through borders and territorial jurisdiction.
In this chapter I argue that the emerging global world economy compro-
mises the effectiveness of national market-based economic governance.
As the minimal spatial extent of product markets grows larger than the ge-
ographic scope of the larger national markets, the latter no longer remain
viable as basic units in the world economy. As an electronically networked
world economy renders economic borders less meaningful, jurisdiction
loses significance. As markets are increasingly constructed in cyberspace,
control through control over territory becomes problematic.
In contrast, an international or crossborder world economy compris-
ing a system of interconnected, geographically defined, national markets
does not necessarily compromise territorial control. Although jurisdic-
tional ambiguity or conflict may make economic governance more diffi-
cult, regulation and taxation through territorial national markets remain
viable.
Globalization entails a systemic change in the organization of eco-
nomics (and politics) comparable in scope to the transition from the
feudal epoch to the modern or Westphalian system in Europe roughly
four hundred years ago. I argue that three related and interwoven char-
acteristics of the emerging global economy are particularly problematic
for authority exercised through spatially defined national markets:
1. The scale of technology in many strategic industries (its cost, risk, and
complexity) renders the minimum effective market size larger than that
of even the largest national markets;
43
44 Stephen J. Kobrin
2. Networks are replacing hierarchies and markets as a basic form of

economic organization; the diffuse, non-centered, and relational char-
acter of networks is not consistent with economic authority exercised
through bounded and discrete geographic territory; and
3. The migration of markets to cyberspace (or some combination of physi-
cal and virtual space) renders geographic space problematic as a basis
for effective economic governance.
As many authors have pointed out, “we have been there and done
that” – this is actually the second global economy or second wave of
globalization.3 The first global economy, which dates roughly from 1870
to 1914, has been called “the high-water mark” of an open, integrated
international economy and the “golden age” of international economic
integration.4
Pre-1914 levels of international trade and investment were striking;
world trade grew by almost 50 percent per decade from the middle of
the nineteenth to the early twentieth century, and international capital
investments by 64 percent per decade during the forty years before World
War I. By most measures the degree of internationalization of the first
global economy compares favorably with that of the current or second. To
cite one relative comparison, at their late twentieth-century peak, Japan’s
capital exports (relative to GDP) were only about half of Great Britain’s
at the turn of the century.5
That being said, there is no question that the current “global” economy
differs significantly from that of a century ago. First, it is broader in terms
of the number of national markets encompassed (albeit to varying de-
grees) as constituent units. Second, it is deeper in terms of the density of
interaction, of flows of trade and investment, than it was prior to 1914.
Third, and perhaps most important, the dominant mode of organiza-
tion of international economic transactions changed significantly in the
late twentieth century from the market (trade and portfolio investment) to
hierarchy or the internationalization of production through the multina-
tional enterprise (MNE).6 By the late 1990s, 60,000 transnational cor-
porations with over 500,000 foreign affiliates accounted for about 25
percent of global output. The United Nations Programme on Transna-
tionals concluded that “international production . . . is at the core of the
process of globalization.”7
That still begs the critical question: does globalization define a change in
degree or kind? Does it represent an extension of the modern international
world economy into somewhat unfamiliar territory, or a systemic trans-
formation which entails changes in both quantity and quality, defining
new structures and new modes of functioning? Does globalization define
a fundamental change in the mode of organization of the world economy?
Economic governance in global economy 45
While there is general agreement that major changes in the scope and
organization of international economic activities are taking place, con-
siderable disagreement over their interpretation remains.8 Some argue
that the interrelated economic and technological developments which
are emerging as critical components of globalization will result in deep
structural adjustments, leading to periods of significant change, per-
haps epochal in nature.9 The French author and politician Jean-Marie
Guehenno, for example, links emerging global networks with the death
of nation-states and of the state structure.10
Others claim that all that has ended is what Eric Hobsbawm calls the
“age of extremes,” the economic dislocations and mass destruction – real
or threatened – which have characterized the “short” twentieth century
from 1914 to the end of the Cold War in 1991.11 One implication of this
line of argument is that with the end of the “age of extremes” we are
now able to return to the open, international world economy of the early
twentieth century; that what appears to be dramatic change is actually a
return to normalcy. Thus, Alan Blinder, who was then vice-chairman of
the US Federal Reserve Board, observed that “a great deal of what we
have been witnessing since 1950 is simply getting the world back to the
level of integration that had been achieved in 1914.”12
The underlying issue, however, is not whether the level of and/or rate of
growth of either trade and investment or of interdependence are greater
in 2000 than they were in 1900. It is whether a qualitative structural
change is taking place, and that cannot be demonstrated by quantitative
arguments involving crosstemporal comparisons of economic data.13
Put differently, is the current global world economy merely “more”
international, or does it entail a deep change in political-economic struc-
ture? If the distinction is to have meaning, it is important to be precise
about definitions. International is a relatively new word dating from the
late eighteenth century;14 it is a modern concept which was not relevant
before the emergence of territorially defined nation-states and national
markets. An international economy links discrete, mutually exclusive, ge-
ographic national markets through crossborder flows of trade and invest-
ment.
“The worldwide international economy is one in which the principal
entities are nation-states, and involves the process of the growing inter-
connection between national economies . . . [it] is an aggregate of nation-
ally located functions.”15 An international economy is unambiguously
modern; it involves relations between sovereign units of the Westphalian
state system and hierarchically structured, often vertically integrated, dis-
crete economic actors. It is profoundly geographic in that borders of states
and markets delineate its constituent components.
The internationalization of production is not necessarily inconsistent

with this framework: MNEs are seen by many observers as national firms
with a clear center or home country, which engage in international oper-
ations and require access to territory to function. At the end of the day,
MNEs are international or crossborder entities which are of the existing
interstate system and are firmly rooted in national jurisdiction.
In contrast globalization entails a qualitative transformation of the inter-
national world economy. As noted above, the argument is based on three
related propositions. First, dramatic increases in the scale of technology
in many industries – in its cost, risk, and complexity – have rendered even
the largest national markets too small to be meaningful economic units;
they are no longer the “principal entities” of the world economy. National
markets are fused transnationally rather than linked across borders.
Second, the recent explosion of transnational strategic alliances is a
manifestation of a fundamental change in the mode of organization of
international economic transactions from markets and/or hierarchies
(i.e., trade and MNEs) to global networks. Last, and related to the second
point, the emerging global economy (and many emerging global political
actors) is digitally integrated and entails the migration of markets from
geographic space to cyberspace.
My primary interest in this chapter is the impact of globalization of
the world economy on economic governance, on national markets and
nation-states. I argue that globalization compromises the basic symme-
try of political and economic organization, of nation-states and national
markets, which is characteristic of much of the twentieth century.
An asymmetry of geographic scope is emerging as economic units (mar-
kets) expand in space well beyond the limits of political units (national
territories). More important is the emerging asymmetry in mode of or-
ganization as interstate politics remains geographically grounded in
sovereign territory while major sectors of the world economy (and
many significant non-state actors) are organized in terms of non-territorial
electronic networks. Geographic space is losing meaning as the basis for
the organization of markets. As a result, geographically rooted economic
governance has become problematic, and non-state or private actors are
increasingly involved in authoritative decision-making.16
The next section of this chapter deals with three components of glob-
alization in some considerable detail: the scale of technology; alliances
and crossborder networks; and the movement of markets to cyberspace.
I then turn to networks as a mode of economic organization and the
emergence of a networked global economy. Implications for states and
the state system will then be discussed. The chapter concludes with some
thoughts about possible futures.
Components of economic globalization
Scale of technology
Markets, as well as economic governance, are typically conceptualized in
spatial or geographic terms. In his Principles, Marshall quotes Cournot to
define a market as “not any particular market place in which things are
bought and sold, but the whole of any region in which buyers and sellers
are in such free intercourse with one another that the prices of the same
goods tend to equality easily and quickly.”17
That raises a pertinent but little considered question: why should mar-
kets spread geographically beyond a local area or region? The simplest
explanation, and the oldest, is that the supply of some goods is found
in one locale and their demand in another: e.g., precious metals, spices,
and petroleum. The geographic expansion of markets also allows for a
more productive division of labor: “Smithian” gains from specialization,
exploitation of differences in resource endowments, and the adaptation
of skills.18
Last, spreading fixed capital costs over a larger market area can reduce
unit costs and produce gains from scale.The application of science and
technology to production processes and products toward the end of the
nineteenth century provided an irresistible motive for the geographic ex-
pansion of markets. Firms found that the need for larger production runs
to achieve economies of scale and, later, the demands of competitive re-
search and development budgets mandated expansion of the geographic
bounds of markets.
In most transnationally integrated industries, internationalization is
driven by scale rather than specialization; a process Kenichi Ohmae char-
acterizes as a dramatic shift from a variable to a fixed-cost environment
has occurred.19 He notes that in a number of critical industries, the scale
of production and/or technology has increased to the point at which fixed
costs must be amortized over a larger market base than is available in
even the largest national markets.
While “Smithian” expansion is consistent with an international world
economy, expansion driven by scale, and especially technological scale,
may not be. An international world economy is constructed through the
mutual interconnection or crossborder integration of national economic
spaces. As Manuel Castells notes, a global economy is something dif-
ferent: “it is an economy with the capacity to work as a unit in real
time on a planetary basis.”20 An international economy links distinct na-
tional markets; a global economy fuses national markets into a coherent
whole.
Furthermore, at this point in time, it is the cost and risk of technol-

ogy rather than the need for larger production runs that are the primary
motivation for the transnational integration of markets. In many strate-
gic industries, international expansion is required to fully amortize the
enormous research and development expenses associated with rapidly
evolving process and product technology. There are only a few industries
(e.g., automobiles and construction equipment) in which the fixed costs
of manufacture are the motivation for international market integration,
and even there developments such as computer-aided design/manufacture
and flexible production are reducing rapidly the number of units needed
to fully exploit scale economies.
While the point is difficult to “prove,” F. M. Scherer has concluded that
in only a very small minority of industries is concentration approaching
oligopoly at the national level justified by production scale economies in
the US market.21 In a previous study, I found that technological intensity
was the primary determinant of the transnational integration of US firms,
and that proxies for manufacturing scale were not significant.22
On the other hand, there is no question that the cost, risk, and pace of
technological development have increased significantly over the past four
decades. For example, constant dollar research and development expen-
ditures for US industry increased almost five and one-half fold between
1953 and 1990; they increased 150 percent between 1980 and 1990
alone. In fact, with the exception of the early 1970s and the early 1990s,
non-Federal government constant dollar R&D expenditures have grown
at an annual rate of well over 6 percent over the last four decades.23
Research and development spending as a percentage of sales for US in-
dustry doubled in the sixteen years between 1976 and 1992: from 1.9 to
3.8 percent.24
As the extent of a company’s research and development effort is man-
dated by the nature of its technology and competition rather than its
size, this rapid growth of spending requires a corresponding expansion
of sales – and ultimately, internationalization – if profitability is to be
maintained. Put another way, it is impossible to maintain a competitive
level of R&D expenditure in industries such as pharmaceuticals, semi-
conductors, telecommunications, or aerospace based upon sales in even
the largest national market. Firms must sell very similar products in a
number of the larger markets to remain players in the industry. In that
sense, the marked increase in the cost, risk, and complexity of technology
over the last decades of the twentieth century has fused markets glob-
ally rather than linking them internationally, at least in these strategic,
technology-intensive industries.
At this point it appears that the global integration of markets by a sin-
gle firm may no longer be sufficient to offset the huge costs and risks of
technological development in a number of strategic industries. The last

decade has seen an exponential increase in technology-driven collabora-
tive agreements or strategic alliances among leading multinationals from
the major industrial countries.
Strategic alliances
Strategic alliances are relevant for two reasons. First, in many instances
they are an indicator that the scale of technology – the cost, risk, and
complexity of research and development – has grown to the point where
it is beyond the reach of even the largest and most global firms. Second,
alliances are a manifestation of the emergence of a networked global econ-
omy; they represent a change in the mode of organization of international
economic transactions.
Although comprehensive data on alliances do not exist, virtually every
attempt at data-gathering reveals their dramatic growth over the last two
decades; one study estimated a 31 percent compound annual growth rate
for the number of high-technology alliances over the 1980s.25 Booz Allen
& Hamilton reports that alliance-generated sales among the Fortune 1000
grew from less than 2 percent in 1980 to 19 percent by 1996; they are
projected to be 35 percent by 2002.26
The vast majority of alliances are triad-based; most studies find that
over 90 percent of all agreements are between firms from North America,
Europe, and Japan.27 Alliances also tend to be concentrated in a lim-
ited number of industries: typically automobiles and high-technology
sectors such as pharmaceuticals, biotechnology, aerospace, information
technology, and new materials.28 A single firm in these industries often
enters into very large numbers of alliances: in the last half of the 1990s,
IBM formed about 800 alliances, AT&T 400, and Hewlett Packard
300.29
The motivations for strategic alliances are complex and varied.30 One
motivation is clearly global market access: the need to compete simul-
taneously in all major markets, or at least in all the legs of the triad. A
second reflects the continued importance of national boundaries: gov-
ernment preferences for “local” firms in industries such as aerospace in
which an alliance with a national or regional firm may be a necessary
requisite of sales to either the military or a national airline. Third, one
can never dismiss an interest in reducing competition as a motive for
collaboration.31
The most important motivation for alliance formation, however, is the
increasing cost, risk, and complexity of technology.32 Even the world’s
largest and most international firms can no longer “bet the company” on
the next generation of semiconductors or jumbo jets; in many industries
the cost of a competitive R&D budget has risen to the point where it is
no longer possible to “go it alone.” An example is provided by the alliance
between IBM, Siemens, and Toshiba to develop a 256-megabyte chip
motivated by the need to share an estimated US$ 1 billion in development
costs and the large associated risks.33
Perhaps more important, technologies have become so complex and
rapidly changing that even industry leaders cannot master them inter-
nally. An analysis of over 4,000 strategic alliances, in which innovation
or an exchange of technology represented at least part of the agreement,
concluded that “cooperation has to be understood in the light of attempts
made by companies to cope with the complexity and the interrelatedness
of different fields of technology and their efforts to gain time and re-
duce uncertainty in joint undertakings during a period of technological
uncertainty. Other motives appear to play a very limited role.”34
In summary, the evidence strongly suggests that the minimum size of
markets needed to support technological development in industries such
as aerospace, semiconductors, and pharmaceuticals is now larger than
the largest national markets. Furthermore, in some industries single-firm
internationalization no longer appears sufficient as even the largest multi-
nationals must cooperate to deal with the cost, risk, and complexity of
technology.35 Alliances represent a transformation of the mode of organi-
zation of international economic transactions from hierarchically struc-
tured MNEs to networks. This has important implications for the viability
of territorially defined national markets and geographically ordered
economic governance, which will be discussed in detail below.
Digitalization of the world economy

The world economy is increasingly electronically integrated and digi-
tal. Networks, and especially transnational networks, are creatures of the
information age held together by information technology.36 Computers,
facsimile machines, high-resolution monitors, and the internet are the
“threads” of the global web of the emerging electronically networked
world economy.37
More important, markets are migrating from geographic space to cy-
berspace as electronic commerce grows in both the business-to-business
and the business-to-consumer spheres. Finally, physical products are be-
coming digital services, data transmitted electronically over the internet.
(The increasing importance of downloaded software or music in the MP3
format provide examples.) We are entering an era in which information
in the form of electronic cash will be routinely exchanged for informa-
tion in the form of a digital book, symphony, photograph, or computer
program. In short, we face a dual revolution: the migration of markets

from geographic space to cyberspace and the morphing of products from
real “atoms” to digital “bits.” Both render geographically defined na-
tional markets and economic governance rooted in territorial jurisdiction
problematic.
Thomas Malone and John Rockart argue that the electronics and in-
formation revolution has resulted in an about-turn, making extra-firm
coordination cheaper and more efficient once again.38 Electronic infor-
mation technology facilitates the integration of geographically dispersed
operations and allows networked coordination to replace ownership and
hierarchy as a primary mode of control.39 One result is the emergence
of flexible networks replacing production by a single large firm. Hierar-
chical, vertically integrated transnational firms have “fragmented” into
“diverse” networks reintegrated through information technology.40
There is widespread agreement that electronic information systems
are critical to alliances. Albert Bressand, Catherine Distler, and Kalypso
Nicolaidis, for example, argue that electronic networks play a central role
in wealth creation as production and transactions merge into complex,
information-intensive processes; networks are a manifestation of the blur-
ring of the boundary between the factory and the marketplace.41 Clarence
Brown makes a similar point: as intrafirm integration increasingly de-
pends on electronic information technologies, modern manufacturing
enterprises are coming to have a great deal in common with information
service firms.42 He notes that this applies to interfirm links – to subcon-
tractors and customers – and that these linkages are rapidly becoming
global in scope.
It is directly relevant that in 1995 Fortune combined the Industrial and
Service “500,” arguing that the new economy has virtually obliterated the
distinction between industrial and service business. The article notes the
digital revolution has “dematerialized” manufacturing, citing one source
claiming that three-fourths of the value added in manufacturing is now
information.43 All firms, regardless of sector, are becoming information
processors.
I have discussed the implications for national markets of the migra-
tion of markets to cyberspace and the digitalization of products in detail
elsewhere.44 One example will make the point here.
The Indian software industry is a dramatic example of a relatively poor
country entering the global economy, or to be more specific a segment
of that country. The industry has grown at an annual rate of 50 to 69
percent through the 1990s. It is also export-oriented, with exports in
1998–99 totaling US$ 2.65 billion and estimated at US$ 3.9 billion in
1999–2000.45
Between 40 and 50 percent of software is exported directly over satellite

or the internet. The vast majority takes the form of services, upgrad-
ing systems, installing new programs, and the like. Target markets are
often financial services and insurance companies in the United States and
Europe. It is quite possible for an Indian programmer in Bangalore to be
working directly on a computer in a bank in New York City, installing a
new program or upgrading the system.
That raises a question of interest: where did the transaction take place?
It is far from clear which “jurisdiction” gets to tax it, or whether it is an
export or an import. There is a very real possibility that national markets
and territorial jurisdiction are not directly relevant when markets are
constructed in cyberspace. Geography and territorial jurisdiction do not
map on cyberspace.
A networked world economy

Increasingly, network metaphors are used to describe the emerging world
economy: a shift from standardized mass production to flexible produc-
tion, from vertically integrated, large-scale organizations to disaggrega-
tion of the value chain and horizontally networked economic units.46 In
Dunning’s terms, hierarchical enterprises are being replaced by alliance
capitalism.47
The information revolution is a critical factor in the emergence of net-
works as a mode of organization of the world economy. Global networks
are both real and virtual; in fact, many combine elements of both. Thus,
Castells argues that international networks of firms and subunits of firms
are the basic organizational form of the “informational/global” economy,
and that the “actual operating unit becomes the business project, enacted
by a network.”48
Similarly, UNCTAD reports that traditional oligopolies (industries
with very concentrated market structures) are being replaced by global
knowledge-based network oligopolies.49 These knowledge-based oligopo-
lies share four interesting characteristics:50 collaboration aims at generat-
ing new knowledge or using or controlling its evolution; they are dynamic,
as collaboration focuses on shaping future boundaries of an industry or
technological trajectories; they are composed of networks of firms, as
alliances form the basic building block of the global oligopoly; and they
form across as well as within industries. (Data processing networks which
involve the merger of information and communications technology are
an example.)
Ford, General Motors, and Chrysler have announced an agreement
to move virtually all of their purchasing activity to the internet. Covisint
is an online business-to-business electronic commerce network which

will handle US$ 80 billion in annual purchasing with more than 30,000
suppliers and, eventually, a US$ 300 billion extended supply chain. As
with other business-to-business networks, users will be able to create
marketplaces, take part in auctions, and complete purchases “with the
click of a mouse.”51 By mid-2001, Covisint had grown to manage trans-
actions which amounted to 13 percent of the “Big Three’s” annual
procurement.52
While global networks such as Covisint are revolutionary, they are but
hybrid interim steps toward true informational networks. As products
are digitalized – for example software, electronic books, and music –
global networks will involve exchanges of information for information,
services for various versions of electronic cash that take place entirely in
cyberspace.53
The emergence of networks as a basic mode of organization of inter-
national economic transactions may be of more profound importance
than increases in the scale of technology. It is important to conceive of
a networked world economy in terms of a complex web of transactions
rather than a series of dyadic or triadic cooperative arrangements between
firms. A large multinational firm may well be involved in tens if not hun-
dreds of alliances linking various parts of its organization with others.
Dicken characterizes these webs as multilateral rather than bilateral, and
polygamous rather than monogamous.54 I now turn to a brief theoretical
discussion of networks before discussion of the impact of a networked
global economy on economic and political organization.
Network forms of organization

Strategic alliances and electronic networks represent a networked mode of
organization of international economic transactions which can be distin-
guished from both trade (markets) and multinational firms (hierarchies).
Although there is general agreement that networks are a basic form of
economic organization, a central question, which is pertinent here, is
whether “markets, hierarchies, and networks are discrete organizational
alternatives employing distinctive control mechanisms or plural forms on
a continuum employing, price, authority, and trust simultaneously.”55
Oliver Williamson includes hybrids or networks – “various forms of
long-term contracting, reciprocal trading, regulation, franchising, and
the like” – with markets and hierarchies as generic forms of economic
organization.56 He locates hybrids on a continuum between markets and
hierarchies, the polar modes of economic organization. Similarly, Wayne
Baker argues that most real organizational forms fall between market and
hierarchy, and suggests that they are an intermediate or hybrid form of

interface.57
In a very influential article, however, Walter Powell argues against por-
traying economic exchange as a continuum with markets and hierarchies
at the poles and hybrids in between. Network forms of organization –
typified by reciprocal patterns of communication and exchange –
represent a distinctive mode of coordinating economic activity and
economic organization.58
Similarly, an OECD report concludes that networks are a distinctive
form of economic organization and the “notion of the continuum fails
to capture the complex realities of know-how trading and knowledge ex-
change in innovation. Networks . . . represent a type of arrangement with
its own specific distinctive features which henceforth must be considered
in its own right.”59
Networks have been described as “social units with relatively stable
patterns of relationships over time.”60 Networks differ from markets in
the assumption of longer-term, sequential transactions, and from hier-
archies in the absence of an authoritative control relationship. Networks
are a social form of exchange, “more dependent on relationships, mutual
interests and reputation . . . [while] network forms of exchange . . . entail
indefinite, sequential transactions within the context of a general pattern
of interaction.”61
Networks have a number of characteristics that affect the nature of
international integration and interdependence. First, they are a form of
“collective action” involving cooperative relationships, in which the ac-
tors implicitly agree to forego the right to pursue their own interests at
the expense of others.62 Network linkages entail relationships over time
rather than individual or “spot” transactions; given longer-term reci-
procity, trust becomes critical. Network relationships are inherently or
“implicitly” interdependent.63
Second, networks do violence to the idea of formal boundaries; vertical,
horizontal, and spatial.64 It becomes difficult if not impossible to define
organizational boundaries, to establish where one firm stops and another
begins. At best, borders are blurred and ambiguous; more realistically
they become conceptually irrelevant.65
Last, networks are relational: individual attributes are less important
than position in determining organizational power and outcomes. “From
a network perspective, variations in the actions of actors (and the success
or failure of these actions) can be better explained by knowing the posi-
tions of actors relative to others . . . than by knowing how their attributes
differ from one another.”66 Thus power is a function of position in the
network. As a corollary, networks have no center.
If networks are significantly different from both markets and hierar-

chies, trade, multinational firms, and alliances (both virtual and real)
represent distinct modes of organization of international economic trans-
actions. Trade involves production by national firms in national markets
linked by “arms-length” spot exchanges, typically of raw materials, com-
modities, and finished goods. MNEs internalize production: the firm’s
administrative hierarchy becomes the primary mode of organization of
the international economy. In the integrated international firm, the ex-
change of intermediate goods through intra-industry and intrafirm trade
becomes increasingly important.
The emergence of global networks signals the replacement of integrated
transnational hierarchies by a cooperative and reciprocal organization of
economic transactions. The basic unit and venue of production become
ambiguous; indeed, there is a real question about the appropriateness of
these terms. The most important flows across transnational networks are
intangible: knowledge and information.
Although the periods overlap and are approximate, trade was the pri-
mary mode of integration of the international economy from the late
nineteenth century through the first two post-World War II decades, the
internationalization of production predominated through MNEs from
the mid-1960s until the mid-1980s, and alliances or networked integra-
tion emerged in the late 1980s. Two caveats are important. First, I am
not proposing a “stage theory” of international integration, but rather
am concerned with changes in the dominant mode over time. Second,
reality is complex and messy and there are large sectors of every economy
in which production has remained entirely national and “networks” are
confined to television and to job-seekers.
Globalization, national markets, and nation-states

I have argued that a global economy differs in kind from the international
economy which preceded it in three critical and interrelated respects.
First, in many industries the scale of technology has driven the minimum
size of markets well beyond that encompassed by even the largest national
markets. Second, in many of these same industries, electronically inte-
grated networks are replacing hierarchies as the most important mode
of organization of international economic transactions. Last, given the
digitalization of the world economy and the emergence of the internet,
markets are migrating from geographic space to cyberspace. All of these
trends have significant impacts on the Westphalian, territorial organiza-
tion of economics and politics, and on relationships of authority within
them.
In the nineteenth century, all production took place in discrete na-

tional markets which were linked through crossborder trade and portfo-
lio investment. Although levels of interdependence were high and policy
autonomy constrained, the national market was the basic unit in the in-
ternational system. As noted above, the very use of the term international
implies the existence of discrete and meaningful territorially defined na-
tional economic (and political) units.
In contrast, at the dawn of the twenty-first century, national markets
are losing meaning as the discrete units of the world economy, as the
scale of technology is fusing them into a larger whole. The transition
to electronic networks and to cyberspace also affects the structure of
the world economy. Networks are inherently interdependent, do violence
to all sorts of boundaries, and are constructed relationally, so that the
concept of a center may lose meaning.
As Castells so aptly notes, positions in the international division of
labor no longer coincide with countries; “they are organized in net-
works and flows, using the technological infrastructure of the informa-
tional economy.”67 In a similar vein, Hirst and Thompson depict national
economies being subsumed and rearticulated into the global system, and
argue that the international economy is becoming autonomized.68
National borders are not irrelevant. Nation-states have differing inter-
ests and objectives, and attempt to enforce their will on firms and other
governments; national boundaries still “create significant differentials on
the global economic surface.”69 The critical point, however, is that global-
ization implies that the national economy is no longer the unit of economic
accounting or the frame of reference for economic strategies.70
Globalization may well represent a return to an earlier stage in the
evolution of the capitalist world economy. Hobsbawm argues that, in con-
trast to the past three hundred years when production was local and the
world economy was based on territorially defined national economies, the
current phase of development is marked by the reemergence of transna-
tional elements. “The national economy is no longer the building block of
the world economy, but has a rival in the immediately global market which
can be supplied directly by firms capable of organizing their production
and distribution in principle without reference to state boundaries.”71
Authority, sovereignty, and the geographic order

Robert Keohane observes that sovereignty is typically discussed rather
than defined.72 Formal sovereignty is a legal concept implying supremacy
within a territory and independence from outside authorities in the ex-
ercise of state authority. In contrast, autonomy and effectiveness are
political constructs; the former implies that a state can and does make its
own decisions with regard to internal and external issues, and the latter
is a measure of the extent to which its purposes are achieved.
Internal sovereignty entails legitimation of the state vis-à-vis competing
domestic claimants. It conceptualizes the state in the Weberian sense as
having an effective monopoly of force over a territory and population, the
“undisputed right to determine the framework of rules, regulations, and
policies within a given territory and to govern accordingly.”73
External sovereignty involves the basic principles on which the modern
interstate order is based: the division of the political order into fixed, terri-
torially defined, and mutually exclusive enclaves and mutual recognition
that each state represents a specific society within an exclusive domain.74
In fact, Hendrik Spruyt argues that a primary explanation for the spread
of sovereign territorial institutions was that respective jurisdictions, and
thus limits to authority, could be specified precisely through agreement
on fixed borders.75 In the Westphalian system, states are assumed to be
the only legitimate sources of political authority.
In examining the impact of globalization on markets, states, and the
state system, one must separate analytically constraints imposed on au-
tonomy, effectiveness, or capacity from impacts on formal sovereignty.
Two sets of questions need to be asked. First, are the constraints that
globalization imposes on state autonomy qualitatively different from those
resulting from the interdependence associated with an international or
crossborder world economy? If so, at what point do constraints on state
autonomy compromise formal internal sovereignty? Second, will the
emergence of an electronically networked global economy compromise
external sovereignty and the idea of territoriality itself as a mode of eco-
nomic and political organization? I believe the second question to be, by
far, the more important.
Globalization and autonomy

State autonomy has never been absolute, and decision-making power
has always been constrained by international economic transactions; the
tradeoff between the efficiency gains from crossborder economic activity
and autonomy is far from new. The problem facing governments has al-
ways been “how to benefit from international exchange while maintaining
as much autonomy as possible.”76
What is new this time around? Even if one grants that flows of trade and
investment are greater in both absolute and relative terms in 2000 than
in 1900, and that there is “more” interdependence (however measured),
that is still only a quantitative difference. Why should globalization have
a qualitatively different impact on state autonomy? Does globalization –

taken in terms of the phenomena discussed in this chapter – render a
state’s ability to exert authority over its economy and over economic actors
more problematic?
Participation in an international economy has always presented states
with a tradeoff between efficiency and a loss of autonomy, and in many
instances governments have chosen to preserve the latter. Without judg-
ing their economic merit, in opting for import-substitution policies such
as forcing local production of automobiles, policy-makers were willing to
trade off higher local costs for automobiles (reduced efficiency) for the
promise of a more developed industrial capability and increased future
autonomy.
That option is not available in industries such as telecommunications,
pharmaceuticals, semiconductors, and aerospace, in which even the
largest national markets are too small to support the research and
development efforts needed to remain competitive. If transnational mar-
kets are an absolute requisite of continued technological innovation, gov-
ernments face a discrete zero–one decision rather than a continuous,
marginal tradeoff. Accepting higher costs (e.g., lower efficiency) for some
degree of autonomy is not a realistic possibility; mutual dependence is
inevitable, and breaking its bonds implies a degree of withdrawal that
few states could tolerate. The choice is to compete transnationally or
to forego the next generation of microprocessors, pharmaceuticals, or
telecommunications technology entirely.
At a minimum, states must allow their firms to participate in global
markets. While in theory governments could participate in the global
economy while closing their borders to participation by others, that op-
tion is not viable in practice. In these strategic industries at least, inde-
pendence or autonomy is a very limited option. State or public authority is
compromised.
At this time in many high-technology industries, participating in the
global economy implies participating through alliances and cooperative
efforts. As Zacher notes, states “are becoming increasingly enmeshed in
a network of interdependencies and regulatory and/or collaborative ar-
rangements from which exit is generally not a feasible option.”77
Alliances and other forms of global networks also constrain states’ abil-
ity to control economic actors through territorial jurisdiction. At this
point in time, the vast majority of MNEs are responsive to their headquar-
ters government; even the most international have a clear center in terms
of operations and management. That is not the case for alliances and the
emerging knowledge-based networked oligopolies discussed earlier. They
are diffuse and often relational: it is far from clear, for example, whether
the American, German, or Japanese government could exert substantial

regulatory control over the IBM–Siemens–Toshiba alliance to develop
chips. Where are strategic alliances “centered”?
In an electronically networked global economy, the borders of national
markets, the concept of territoriality itself, and the distinction between
the domestic and international economy (or domestic and international
policy) become problematic. In Being Digital, Nicholas Negroponte makes
a distinction between trade in atoms and trade in bits.78 Atoms take the
form of tangible material which must cross borders physically and can be
controlled by political authorities. Bits, on the other hand, are transmit-
ted electronically, typically by satellite, which process renders the borders
of national markets virtually meaningless.
If software is imported in the form of disks and manuals, it is sub-
ject to border controls, tariffs, and the like. However, if it is transmitted
digitally – downloaded from the internet, for example – any sort of con-
trol becomes problematic and autonomy is directly constrained. As noted
above, the Indian software industry has evolved from sending Indian pro-
grammers abroad to work at a client’s site (known as “body-shopping”) to
satellite linkages through which programmers physically situated in India
work directly on the client’s host computer, wherever in the world it is
located.79 If an Indian programmer located in Bangalore edits a program
on a computer in New York, there is no question that economic value has
been created. It is far from clear, however, whether the transaction took
place in India or the United States and, thus, which jurisdiction gets to
tax it or control it. Furthermore, neither government may actually know
that the transaction took place.
Susan Strange has argued that states are losing authority, in part to mar-
kets and MNEs, and in part to other actors in the international system,80
and that the authority of governments of all states has weakened as result
of technical and financial change and of integration of national economies
into one single global market economy. As noted in the introduction to
this volume, as the authority of states has weakened, a growing num-
ber of other actors have taken on authoritative roles in the international
political system. These sources of private authority include amorphous
“actors” such as global financial markets, and specific actors such as
MNEs, both individually and collectively. They also include the rising
number of NGOs and other civil society groups active in international
politics.
The question remains, however: at what point do constraints on state
autonomy affect formal sovereignty? As Geoffrey Goodwin puts it, the
issue is “whether the capacity of states to order their own internal affairs
and to conduct their own external policies has been so undermined or
eroded as to make the concept of state sovereignty increasingly irrelevant

in practice despite its persistence in legal and diplomatic convention.”81
Although this question is not immediately answerable, it is nonetheless
critically important.
External sovereignty and territoriality

All forms of political organization occupy geographic space. However,
that does not mean that they are territorial, systems of rule “predicated on
and defined by fixed territorial parameters.”82 The distinguishing charac-
teristic of the modern state is that it is territorial, and that of the modern
state system that it organizes geographic space. As James Anderson notes:
Modern states . . . are all territorial in that they explicitly claim, and are based on,
particular geographic territories, as distinct from merely occupying geographic
space which is true of all social organizations . . . territory is typically continuous
and totally enclosed by a clearly demarcated and defended boundary.83
What makes the modern state system historically unique is this

“differentiation” into “territorially defined, fixed and mutually exclusive
enclaves of legitimate dominion.”84 Joseph Camilleri and Jim Falk argue
that the first function of the sovereign state was the organization of space
and that the spatial qualities of the state are “integral to the notion
of sovereignty and international relations theory.”85 As Ronald Deibert
notes, what might be called “High Westphalia – a condition of territorial
exclusivity and spatial differentiation” is what marks the modern period.86
The modern construction of economics is also inherently territorial;
the market, national markets, and even the international economy are
geographic constructs. As noted above, national markets were created by
political authorities in part to territorialize economic activity.87
In general, regional markets – the European Union is the best example –
are motivated by the need to expand the geographic bounds of national
markets to increase efficiency in terms of specialization and/or scale. An
international economy, then, comprises national or regional economic
spaces linked through economic transactions; economic integration is
the extension of a market in geographic space.88 In part, globalization
involves “deepening” or closer integration across national, regional, and
global geographic spaces.89
An argument has been made that, regardless of how international the
world economy becomes, at the end of the day all economic activity takes
place within national boundaries.90 The implication is that even the most
integrated MNE does not alter the basic geographic structure of the world
economy; any given step in the production process or any given economic
transaction can be located precisely in geographic space and thus assigned

unambiguously to a specific national territorial jurisdiction and national
market. While that argument may hold for a modern international econ-
omy, it is not necessarily valid in a post-modern, electronically networked
global economy.
There is nothing in the nature of markets that demands that they be
defined spatially. In part, the spatial definition of markets is a function
of the stage of technological development, the need for physical contact
between buyers and sellers. In part, it is a result of the path of development
of the modern political-economic system. Many of the emerging global
networks construct markets in electronic rather than geographic space.
The international financial system provides both the best current example
and a metaphor for the future.
The world financial market does not comprise linked national markets;
in fact, it does not comprise geographic locations at all. It is a network in-
tegrated through electronic information systems, hundreds of thousands
of electronic monitors in trading rooms all over the world linked together
through satellites.91 It is a system which is no longer nationally centered,
“in which national markets, physically separate, function as if they were
all in the same place.” Global financial integration has been described as
“the end of geography.”92
If a trader in New York presses a key on her computer and buys eu-
ros in London, where did the transaction take place? Chase Manhattan
Corporation has built a center to process transactions worth trillions of
dollars each year in Bournemouth, England, linked by satellite to its
offices in New York, Hong Kong, Luxembourg, and Tokyo. Would any-
one argue that all of these “transactions” can be located in the United
Kingdom?93
The concept of geographic space does not apply directly to cyberspace.
It is far from clear what jurisdictions and boundaries mean when markets
take the form of information systems. One can question whether all eco-
nomic activity takes place within national boundaries or even whether
economic activity can occur in more than one place at the same time.
At the end of the day, the real question is whether the spatial concepts
of borders, territory, and jurisdiction apply to electronically organized
global networks.
The information revolution – the linking of telecommunications and
computers – makes the very idea of a market as a geographic construct
obsolete; they have become global networks rather than places.94 John
Ruggie suggests that a nonterritorial region is emerging in the world econ-
omy, “a decentered yet integrated space-of-flows . . . which exists along
side the spaces-of-places that we call national economies.” He goes on to
note that in this nonterritorial region the distinctions between internal

and external become problematic.95
In summary, the very idea of a national market as an economic (or
political) construct appears to have lost meaning in the post-modern
world economy. As Peter Dombrowski and Richard Mansbach observe,
“Markets are now effectively deterritorialized, and there is a growing in-
compatibility between the political boundaries of states and the economic
boundaries of markets.”96
Given the emergence of electronic global networks, neither territorial-
ity nor mutually exclusive geographic organization retain relevance. The
result has been to strip markets of both geographic and political mean-
ing. The net effect of both is to raise questions about the meaning of
sovereignty – at least relative to economies and economic governance –
in its external sense of a system ordered in terms of mutually exclusive
territoriality.
Sovereignty and modernity cannot be separated. Both entail the unam-
biguous and mutually exclusive ordering of space; both are profoundly
geographic. Camilleri and Falk go so far as to claim that “[s]overeignty,
both as an idea and an institution, lies at the heart of the modern and
therefore Western experience of space and time.”97
Both Gianfranco Poggi and Friedrich Kratochwil note a crisis of terri-
toriality. The latter observes that the fact that political systems are terri-
torial and boundary-maintaining, and economic systems are not, affects
the very core of the state as a political entity.98 It is to that asymmetry
that I now turn.
Economic and political geography

While one can certainly agree with Miles Kahler that international eco-
nomic space seldom coincides perfectly with political space, during most
of the twentieth century there was a rough symmetry between politics
and economics: both nation-states and national markets have been
bounded by the same set of unambiguous borders and organized
geographically.99 Nation-states and national markets, however, consti-
tute but one of a number of historical modes of organizing political and
economic authority and, in historical terms, relatively short-lived ones at
that.100 It is not unreasonable to argue that the symmetry between states
and markets in both geographic scope and mode of organization – which
we tend to take as the natural order of things – is characteristic of only a
very brief window of time: perhaps the hundred years spanning the late
nineteenth to the late twentieth centuries.
Martin Parker distinguishes between post-modern as a historical pe-

riod and postmodern as a theoretical perspective (he uses the hyphen to
distinguish between the two).101 Thus, one can meaningfully talk about
a modern or Westphalian political-economic system structured in terms
of unambiguous territorial jurisdiction, or the transition from modern
to post-modern organizations in terms of the disintegration of “Fordist”
vertically integrated hierarchical firms, without assuming a postmodern
epistemology.
At the start of the twenty-first century a post-modern global economy is
situated in a political system which is still grounded, at least conceptually,
in modernity. As noted above, in many of the industries now regarded
as strategic, the minimal market size needed to support a competitive
research and development effort is larger than even the largest national
markets; they are no longer the basic structural unit of the global economy.
Perhaps of more fundamental importance is the fact that most of the
concepts we use to understand international politics are still organized
in terms of territory and borders. Economic activity, on the other hand,
is increasingly organized in terms of electronic networks. The result is
a developing asymmetry of scope and mode of organization between a
modern, territorially based, and geographically organized international
political system comprising nation-states, and an emerging post-modern
world economy where national markets and, indeed, the very concepts
of territoriality and geography are becoming less relevant.
That being said, two caveats are necessary. First, as I will discuss below,
the international political system is also in the midst of traumatic change.
As is discussed elsewhere in this volume, non-state and non-territorial
actors are emerging which wield significant “private” political authority.
Second, neither the international nor the global world economy is all-
encompassing. Many sectors of economic activity are still domestic and
little affected by crossborder transactions; many others remain grounded
in a crossborder or international economy. While the focus of this chapter
is on post-modern as a historical period rather than postmodern as an
epistemology, the simultaneous existence of domestic, international, and
global economies would not be inconsistent with the latter.
Back to the future102

Geoffrey de Joinville, a thirteenth-century French medieval lord, acquired
a considerable portion of Ireland through a “strategic alliance.” His half-
sister’s husband – the uncle of the queen of England – arranged a marriage
with Matilda, granddaughter of Walter de Lacy, Lord of Meath, who
brought substantial Irish lands with her.103 After his marriage, de Joinville
owed simultaneous allegiance to the kings of England and France.
As E. H. Carr argued many years ago, it is difficult for contemporary
observers to even imagine a world in which political power is organized
on a basis other than territory.104 However, neither de Joinville’s fiefdoms
nor the international financial market are modern, geographically based
forms of political or economic organization. Political control in one case
and economic transactions in the other are organized without regard
to mutually exclusive geography or meaningful and discrete borders.
To a large extent both pre- and post-modern forms of organization are
aterritorial.
Over twenty years ago Hedley Bull argued that the emergence of a mod-
ern and secular counterpart of Western Christendom, with its character-
istic overlapping authority and multiple loyalties, was within the realm of
possibility.105 The post-modern future may well resemble the medieval
past more closely – at least metaphorically – than the more immediate,
geographically organized world of national markets and nation-states.
Although medieval “states” occupied geographic space, politics was not
organized in terms of unambiguous geography. Political authority took
the form of hierarchical personal relationships, often overlapping and
intertwined mutual obligations and rights, as de Joinville well illustrates.
Borders were diffuse, representing a projection of power rather than a
limit of sovereignty. In that context, power and authority could not be
based on mutually exclusive geography.
The Middle Ages lacked the singular relationship between authority
and territory characteristic of the modern era; geographic location did
not determine identity and loyalty. Overlapping and competing political
authorities were the norm rather than the exception. At times, the spheres
of pope, emperor, prince, and lord were all interwoven and comprised
complex aterritorial networks of rival jurisdiction.
Citing other sources, John Ruggie describes the medieval system of rule
in terms of a “patchwork” of overlapping and incomplete rights of gov-
ernment which were “inextricably superimposed and tangled.” He labels
the medieval institutional framework heteronomous, connoting a “lattice-
like network of authority relations.” These overlapping, interwoven, and
incomplete systems of authority often resulted in competing claims to the
same geographic area.106
To assert singular territorial authority, early modern monarchs had to
exert primacy over a patchwork of dukedoms, principalities, and other
localized authorities as well as transnational institutions such as the pa-
pacy and monastic and knightly orders. Until that was accomplished, the
concept of an unambiguous relationship between authority and territory

was unknown.
Sovereignty – in its modern sense – is unambiguous political authority.
The underlying idea of the modern political system is exclusive authority
over a discrete geographic space, which entails the absence of both do-
mestic competitors and extraterritorial superiors. It implies that the state
is the ultimate domestic authority and bows to no external power, be it
pope or emperor.107
Singular territorially based authority is once more becoming problem-
atic in our emerging post-modern global political economy. States are no
longer the sole sources of legitimate authority; in fact we face a world
of overlapping and ambiguous “authorities” which may shift as the con-
text changes. As noted above, MNEs and markets are one source of
authority in the international system and NGOs and other civil society
groups another. There are times when significant international political
negotiations have involved these two sets of actors, with states on the
sidelines.
An excellent example is the battle over the price of AIDS drugs in
Africa and other poor regions in late 2000 and the spring of 2001. After
considerable negotiation and pressure from a variety of well-organized
groups, the pharmaceutical companies offered to reduce dramatically the
price of “AIDS cocktails” in South Africa and a number of other African
countries. What is of interest here is that the primary negotiators were
the private sector – pharmaceutical multinationals – and NGOs includ-
ing Doctors Without Borders/Médecins Sans Frontières and a range of
AIDS activists. The principal actors were private authorities rather than
states.108
While the medieval analogy has very obvious limits, the past may well
contain applicable lessons for the future. A neat, unambiguous order-
ing of economic and political authority along geographic lines may no
longer be the norm. Borders are diffuse and permeable, compromised by
transnational integration and global telecommunications. Relationships
are increasingly networked rather than hierarchical with both individuals
and organizations enmeshed in complex, polygamous worldwide webs.
Multiple and competing loyalties result.
James Rosenau foresees the emergence of a dual system of sovereignty-
bound and sovereignty-free actors – or state-centric and multicentric
worlds – coexisting together. “The result is a paradigm that neither cir-
cumvents nor negates the state-centric model but posits sovereignty-
bound and sovereignty-free actors as inhabitants of separate worlds that
interact in such a way as to make their coexistence possible.”109
One of the primary characteristics of modernity is a lack of ambiguity.

The international political system is structured in terms of discrete and
mutually exclusive geography: disputed border areas aside, every point
in geographic space belongs unambiguously to a single nation-state and
market. With very few exceptions every individual under the law, includ-
ing every corporation, is a citizen of a single state. Similarly, the essence
of the modern integrated economic organization is a clear hierarchy and
a single chain of command: one boss, one company. Every individual,
and every transaction, can be located in organizational space.
We may well be at a point of transition comparable to what Ruggie de-
scribes as the “most important contextual change in international politics
in this millennium: the shift from the medieval to the modern interna-
tional system.”110 The emergence of an electronically networked global
economy may herald an analogous transition to a post-modern political-
economic system.
There is, however, a danger in trying to project modern assumptions
into a post-modern era. Linearity or unrepeatable time is basic to modern-
ity.111 We assume that time’s arrow is unidirectional and that progress is
irreversible; that there is a historic progression from classical to medieval
to modern to – perhaps – post-modern. That assumption may be wrong.
The state?
This chapter has argued that globalization will markedly constrain the
autonomy and effectiveness of states and, at a minimum, raise serious
questions about the meaning of internal and external sovereignty. One
point should be clear: I am not claiming that the state will wither away or
even be rendered impotent. Rather, I argue that globalization will affect
the structure and functioning of both states and the interstate system.
At a minimum, states will be still be responsible for any number of
critical functions: for the welfare of their citizens, for basic social and
physical infrastructure, and for insuring economic viability, albeit in a
very different context. Furthermore, while globalization will transform
relatively large number of critical, strategic sectors, it certainly does not
affect all sectors, firms, and individuals equally. There will still be firms
that function as domestic actors and those that function in a more tradi-
tional international or crossborder economy.
There is no question, however, that the meaning of sovereignty will
evolve and that the state’s role relative to supranational and subnational
actors will change. The medieval analogy is useful. It should be clear
at this point that I agree with Hirst and Thompson that the political
order is becoming more polycentric, with states seen as one level in a
very complex system of often overlapping and competing agencies of

governance.112 As discussed elsewhere in this volume, states are no longer
the sole source of political authority; private political authorities have
emerged and coexist with public authorities in an complex, interwoven,
and ambiguous relationship.
There is certainly some recognition of the need for some sort of control
at the center. The World Trade Organization (for example) has been given
greater adjudication powers than its predecessor (the General Agreement
on Tariffs and Trade). Furthermore, regional agreements such as the
European Union, the North American Free Trade Agreement (NAFTA),
and the Association of South East Asian Nations (ASEAN) appear to be
proliferating. The progress of the EU to this point, including the suc-
cessful adoption of a common currency, has major implications for state
sovereignty.
At the same time, there appears to be increasing pressure for devo-
lution of powers downwards to subnational entities, whether they are
individual states in federal systems such as the United States or regions
within Europe. The situation is complicated further by the rise of non-
governmental organizations (NGOs) as important actors in international
politics; one thinks immediately of Greenpeace in environmental politics
or Amnesty International in human rights.
The modern system of political and economic organization may well
have been an exception. There is no reason to assume that a lack of geo-
graphic ambiguity, or even of territoriality itself, is inherent in the human
condition.113 The post-modern era may well resemble the medieval in
terms of ambiguity, multiple loyalties, multiple levels of authority, and
the coexistence of multiple types of political and economic actors. It is
certainly consistent with a post-modern world view to reject the “mod-
ernist narrative of progress” and “embrace many simultaneously different
and even contradictory accounts of reality.”114
A medieval lord dealt with allegiances to multiple sovereigns, perhaps
an emperor, and the coexistence of secular and sacred authority as the
norm. Is there any reason a post-modern person could not deal with
subnational, national, regional, international, civil society, and suprana-
tional “authorities” simultaneously? Or with multiple and ill-defined al-
legiances? Or with a system ordered on some basis other than geography?
This chapter has argued that globalization entails the technologically
driven expansion of the scope of markets well beyond the limits of even the
largest national territories, the replacement of markets and hierarchies by
relational networks as the mode of organization of international economic
transactions, and the migration of markets to cyberspace. Globalization
signifies the emergence of a post-modern world economy that is not
consistent with a modern, territorially defined, international political sys-

tem. While the emerging asymmetry could be resolved by some sort of
“world order,” that is not likely in the foreseeable future. Modern eco-
nomic and political actors will have to learn to deal with the ambiguity
and uncertainty of the post-modern future.

1 Fernand Braudel, Afterthoughts on Material Civilization and Capitalism
(Baltimore, Md.: Johns Hopkins University Press, 1977), p. 20.
2 This chapter is a revision of “The Architecture of Globalization: State Sover-
eignty in a Networked Global Economy,” ch. 5 in John H. Dunning (ed.),
Governments, Globalization and International Business (Oxford and New York:
Oxford University Press, 1997), pp. 146–71. I would like to thank Mark Casson,
John Dunning, Vicki Golich, Ben Gomes-Cassares, John Ikenberry, Robert
Keohane, Bruce Kogut, Robert Kudrle, Richard Lipsey, Richard Locke, Tom
Malnight, Simon Reich, John Ruggie, Karl Suvant, John Stopford, and
Raymond Vernon for comments on previous drafts. The Reginald Jones Center
at the Wharton School provided partial support for this research.
3 Richard E. Baldwin and Phillipe Martin, “Two Waves of Globalization: Super-
ficial Similarities, Fundamental Differences,” Working Paper 6904 (National
Bureau of Economic Research, 1999).
4 Paul R. Krugman, “A Global Economy Is Not the Wave of the Future,”
Financial Executive, March–April 1992, 10–13; John Dunning, Multinational
Enterprises and the Global Economy (Reading, Mass.: Addison-Wesley, 1993);
Paul Streeten, Interdependence and Integration of the World Economy: The Role of
States (New York: Oxford University Press, 1992), pp. 125–26.
5 Martin Wolf, “Globalization and the State,” Financial Times, 18 September
1995, 22. Sodersten and Rosecrance, et al., argue that, prior to World War
I, international trade was a higher proportion of national income and direct
and indirect investment a larger fraction of GNP than at the time they were
writing (the mid-1970s). See Bo Sodersten, International Economics, 2nd edn.
(New York: St. Martin’s Press, 1980), and Richard Rosecrance, A. Alexandroff,
W. Koehler, J. Kroll, S. Laquer, and J. Stocker, “Whither Interdependence,”
6 In 1998, sales of subsidiaries of MNEs abroad (US$ 11 trillion) substantially ex-
ceeded exports of US$ 7 trillion. See United Nations Conference on Trade and
Development, World Investment Report: 1999 (New York and Geneva: United
Nations, 1999), p. xix. Furthermore, a significant proportion of what appears
to be trade is actually crossborder intrafirm transfers, and sales of subsidiaries
of MNEs located outside the home country now substantially exceed the value
of goods “traded” internationally. In the mid-1990s, UNCTAD estimates that
intrafirm trade accounts for about 35 percent of all international transactions
and, for the United States, sales of affiliates exceed crossborder sales of goods
and services by a factor of 2.5 to 1: United Nations Conference on Trade and
Development, “Trends in Foreign Direct Investment,” TD/B/ITNC/2 (Geneva:
UNCTAD, 1995).
7 UNCTAD, World Investment Report: 1999, pp. xvii, xix. For a dissenting view
on the tendency toward the internationalization of production, see David
M. Gordon, “The Global Economy: New Edifice or Crumbling Founda-
tions?,” New Left Review, March–April 1988, 24–65.
8 Peter Dicken, “The Roepke Lecture in Economic Geography. Global–Local
Tensions: Firms and States in the Global Space-Economy,” Economic
Geography, 70 (2) (1994), 101–02.
9 Richard G. Lipsey and Cliff Bekar, “A Structuralist View of Technical Change
and Economic Growth,” Bell Canada Papers on Economic and Public Policy,
vol. 3 (Kingston, Ont.: John Deutsch Institute, Queen’s University, 1995),
pp. 9–75. See also Martin Albrow, The Global Age: State and Society Beyond
Modernity (Stanford: Stanford University Press, 1997).
10 Jean-Marie Guehenno, “Asia May Offer a New Model of Politics,” Interna-
tional Herald Tribune, 16 May 1994.
11 Eric J. Hobsbawm, The Age of Extremes: A History of the World, 1914–1991
(New York: Pantheon Books, 1994).
12 New York Times, 12 March 1995, E5.
13 Charles-Albert Michalet, “Transnational Corporations and the Changing In-
ternational Economic System,” Transnational Corporations, 3 (1) (1994),
6–22.
14 The Oxford English Dictionary attributes its first use to Bentham in 1780 in
a discussion of international jurisprudence, in which he explicitly states that
the word is a new one.
15 Paul Hirst and Graham E. Thompson, “The Problem of Globalization: In-
ternational Economic Relations, National Economic Management and the
Formation of Trading Blocs,” Economy and Society, 21 (4) (1992), 358–60.
16 See A. Claire Cutler, Virginia Haufler, and Tony Porter (eds.), Private Au-
thority and International Affairs (Albany, N.Y.: SUNY Press, 1999).
17 Alfred Marshall, Principles of Economics, 8th edn. (London: Macmillan, 1961),
pp. 270 and 274 (emphasis added).
18 Smithian growth results from “the creation of commerce and voluntary ex-
change between two previously disjoint units – be they individuals, villages,
regions, countries, or continents”: William N. Parker, Europe, America and the
Wider World: Essays on the Economic History of Western Capitalism (Cambridge:
Cambridge University Press, 1984), p. 1. Also see Joel Mokyr, The Lever of
Riches: Technological Creativity and Economic Progress (New York: Oxford Uni-
versity Press, 1990), pp. 4–6.
19 Kenichi Ohmae, The Borderless World (New York: Harper Business, 1990).
20 Manuel Castells, The Rise of the Network Society (Malden, Mass.: Blackwell,
1996), p. 93.
21 F. M. Scherer, “Economies of Scale and Industrial Concentration,” in Harvey
Goldschmid, H. Michael Mann, and J. Fred Weston (eds.), Industrial Con-
centration: The New Learning (Boston: Little Brown and Company, 1974),
pp. 16–54.
22 Stephen J. Kobrin, “An Empirical Analysis of the Determinants of Global
Integration,” Strategic Management Journal, 12 (1991), 17–31.
23 J. E. Jankowski, Jr., National Patterns of R&D Resources, NSF 92–330
(Washington, D.C.: National Science Foundation, 1992).
24 See Peter Coy, Neil Gross, Silvia Sansoni, and Kevin Tilley, “R&D Score-
board,” Business Week, 3378 (27 June 1994), 78–103, and Kelley Holland and
Paula Dwyer, “Technobanking Takes Off,” Business Week, 3399 (18 November
1994), 52–53.
25 See Benjamin Gomes-Casseres, “Computers: Alliances and Industry Evo-
lution,” in David B. Yoffee (ed.), Beyond Free Trade: Firms, Governments and
Global Competition (Boston: Harvard Business School Press, 1993),
pp. 79–128; Richard N. Osborn and C. Christopher Baughn, “Forms of
Interorganizational Governance for Multinational Alliances,” Academy of
Management Journal, 33 (1990), 503–19; and Vern Terpstra and Bernard L.
Simonin, “Strategic Alliances in the Triad: An Exploratory Study,” Journal
of International Marketing, 1 (1993), 4–25, among many others. The LARA/
CEREM data base, for example, of 1,086 agreements involving at least one
European partner shows an average of 67 a year in 1980–82, 133 in 1983–85,
and 243 in 1986–87: Lynn Krieger Mytelka, “Crisis, Technological Change
and the Strategic Alliance,” in Mytelka, Strategic Partnerships: States, Firms
and International Competition (Rutherford, N.J.: Fairleigh-Dickinson Univer-
sity Press, 1991), pp. 10–11.
26 Quoted in Gabor Garai, “Leveraging the Rewards of Strategic Alliances,”
Journal of Business Strategy, 20 (2) (1999), 40–43.
27 United States Congress, Office of Technology Assessment, Multinationals and
the National Interest: Playing by Different Rules, OTA-ITE-569 (Washington,
D.C.: US Government Printing Office, 1993).
28 United States Congress, Office of Technology Assessment, Multinationals and
the US Technology Base, OTA-ITE-612 (Washington, D.C.: US Government
Printing Office, 1994).
29 Garai, “Leveraging the Rewards of Strategic Alliances.”
30 Mytelka, Strategic Partnerships.
31 Raymond Vernon argues that this is the primary motivation for the current
wave of strategic alliances: letter to the author, November 1993.
32 Again, while generalization is difficult, existing data do appear to support tech-
nology as the dominant driver of interfirm cooperative agreements. An OECD
report, for example, sums evidence from “one of the best data banks” to con-
clude that R&D cooperation represents the single most important objective of
interfirm agreements: Organization for Economic Cooperation and Develop-
ment, Technology and the Economy: The Key Relationship (Paris: OECD, 1992).
Similarly, in reviewing a number of empirical studies, Mytelka concludes that
knowledge production and sharing is an increasingly important component
of strategic partnerships: Mytelka, “Crisis, Technological Change and the
Strategic Alliance,” p. 9.
33 United Nations Conference on Trade and Development, World Investment
Report: 1993 (New York: United Nations, 1994).
34 John Hagedoorn, “Understanding the Role of Strategic Technology
Partnering: Interorganizational Modes of Cooperation and Sectoral
Differences,” Strategic Management Journal, 14 (5) (1993), 378.
35 A caveat is necessary. Although the growth of alliances has been dramatic
over the past decade, their presence is not universal. While the data are still
fragmentary, alliances appear to concentrate in industries characterized by

technological or capital intensity. It should be noted, however, that these
industries (e.g., aerospace, semiconductors, telecommunications, and auto-
mobiles) are the most important strategically in terms of national economic
competitiveness and security.
36 Stewart R. Clegg, Modern Organizations (London: Sage, 1990).
37 Robert B. Reich, The Work of Nations (New York: Alfred A. Knopf, 1991).
38 Thomas W. Malone and John F. Rockart, “How Will Information Tech-
nology Reshape Organizations? Computers as Coordination Technology,”
in Stephen Bradley, Jerry A. Hausman, and Richard L. Nolan (eds.),
Globalization, Technology, and Competition: The Fusion of Technology and
Computers in the 1990s (Boston: Harvard Business School Press, 1993),
pp. 37–56.
39 Dicken, “Roepke Lecture.”
40 Martin Parker, “Post-modern Organizations or Postmodern Theory?,” Orga-
nization Studies, 13 (1) (1992), 9.
41 Albert Bressand, Catherine Distler, and Kalypso Nicolaidis, “Networks at the
Heart of the Service Economy,” in Bressand and Nicolaidis (eds.), Strategic
Trends in Services (New York: Ballinger, 1989), pp. 17–33.
42 Clarence J. Brown, “New Concepts for a Changing International Economy,”
Washington Quarterly, 11 (1) (1988), 89–101.
43 Thomas A. Stewart, “A New 500 for the New Economy,” Fortune, 15 May
1995, 168–78.
44 Stephen J. Kobrin, “You Can’t Declare Cyberspace National Territory: Eco-
nomic Policy Making in the Digital Age,” in Don Tapscott, Alex Lowy, and
David Ticoll (eds.), Blueprint to the Digital Economy (New York: McGraw-Hill,
1998), pp. 355–70.
45 Financial Times, 1 December 1999.
46 UNCTAD, World Investment Report: 1993; Manuel Castells, “The Informa-
tional Economy and the New International Division of Labor,” in Martin
Carnoy, Castells, Stephen S. Cohen, and Fernando Henrique Cardoso (eds.),
The New Global Economy in the Information Age (University Park, Penn.: Penn
State University Press, 1993), pp. 15–43; Charles-Albert Michalet, “Strate-
gic Partnerships and the Changing Internationalization Process,” in Mytelka,
Strategic Partnerships, pp. 35–50; and Economist, “The Global Firm: RIP,”
6 February 1993, 69.
47 John H. Dunning, Globalization, Economic Restructuring and Development: The
Sixth Raul Prebish Lecture (Geneva: UNCTAD, 1994). See also David Harvey,
The Condition of Postmodernity: An Enquiry into the Origins of Cultural Change
(Cambridge, Mass., and Oxford: Blackwell Publishers, 1990), for references
to the large and growing literature on this topic.
48 Castells, Rise of the Network Society, pp. 191, 165.
49 UNCTAD, World Investment Report: 1999, p. 107.
50 These characteristics and much of the discussion is drawn from Lynn Krieger
Mytelka and Michel Delapierre, “Strategic Partnerships, Knowledge-Based
Networks and the State,” in Cutler, Haufler, and Porter, Private Authority and
International Affairs, pp. 129–49.
51 Electronic Buyer’s News, 6 December 1999, and Crain’s Detroit Business, 8

November 1999.
52 Steve Konici, “Covisint Books Impressive Procurement Volume,”
Informationweek.com, 18 July 2001 (www.informationweek.com).
53 Stephen J. Kobrin, “Electronic Cash and the End of National Markets,”
Foreign Policy, 107 (Summer 1997), 65–77.
54 Dicken, “Roepke Lecture.”
55 Candace Jones and William S. Hesterly, “A Network Organization: Alterna-
tive Governance Form or a Glorified Market?” (presented at the Academy of
Management meeting, Atlanta, Ga., August 1993), p. 3. The literature on net-
works is large and growing. For an introduction and references, see Sumantra
Goshal and Christopher A. Bartlett, “The Multinational Corporation as a
Strategic Network,” Academy of Management Review, 15 (1990), 603–25;
Raymond Miles and Charles C. Snow, “Organizations: New Concepts for
New Norms,” California Management Review, 27 (3) (1986), 62–73; Nitin
Nohria and Robert C. Eccles, Networks and Organizations: Structure, Form
and Action (Boston: Harvard Business School Press, 1992); and Barry Well-
man and S. D. Berkowitz, Social Structures: A Network Approach (Cambridge:
Cambridge University Press, 1988).
56 Oliver E. Williamson, “Comparative Economic Organization: The Analysis of
Discrete Structural Alternatives,” Administrative Science Quarterly, 36 (1991),
280.
57 Wayne E. Baker, “Market Networks and Corporate Behavior,” American Jour-
nal of Sociology, 96 (3) (1990), 589–625.
58 Powell characterizes the continuum view as quiescent and mechanical, and
argues that, by “sticking to the twin pillars of markets and hierarchies, our
attention is deflected from a diversity of organizational designs that are neither
fish nor fowl, nor some mongrel hybrid, but a distinctly different form”: Walter
Powell, “Neither Market Nor Hierarchy: Network Forms of Organization,”
Research in Organization Behavior, 12 (1990), 295, 298, 299. Also see J. Carlos
Jarillo, “On Strategic Networks,” Strategic Management Journal, 9 (1988), 31–
41, and Hans B. Thorelli, “Networks: Between Markets and Hierarchies,”
Strategic Management Journal, 7 (1986), 37–51.
59 OECD, Technology and the Economy, p. 78 (emphasis in original).
60 Noel M Tichy, Michael L. Tushman, and Charles Fombrun, “Social Network
Analysis for Organizations,” Academy of Management Review, 4 (4) (1979),
509.
61 Powell, “Neither Market Nor Hierarchy,” 300–01.
62 Ibid.
63 Jarillo, “On Strategic Networks,” Miles and Snow, “Organizations,” and
Thorelli, “Networks.”
64 Baker, “Market Networks and Corporate Behavior.”
65 Powell, “Neither Market Nor Hierarchy.”
66 Nohria and Eccles, Networks and Organizations, p. 7. See also Wellman and
Berkowitz, Social Structures.
67 Castells, Rise of the Network Society, p. 147.
68 Hirst and Thompson, “Problem of Globalization.”
69 Dicken, “Roepke Lecture,” 149.
70 See Castells, “Informational Economy”; W. Michael Blumental, “The World

Economy and Technological Change,” Foreign Affairs, 66 (1988), 529–50;
Thomas H. Lee and Proctor P. Reed (eds.), National Interests in an Age of
Global Technology (Washington, D.C.: National Academy Press, 1991); and
Reich, Work of Nations.
71 Hobsbawm, Age of Extremes, p. 135.
72 Robert O. Keohane, “Sovereignty, Interdependence, and International Insti-
tutions,” in Linda B. Miller and Michael Joseph Smith (eds.), Ideas and Ideals:
Essays on Politics in Honor of Stanley Hoffman (Boulder, Colo.: Westview Press,
1993), pp. 91–107.
73 David Held and Anthony McGrew, “Globalization and the Liberal Demo-
cratic State,” Government and Opposition, 28 (2) (1993), 265.
74 John Gerard Ruggie, “Territoriality and Beyond: Problematizing Modernity
in International Relations,” International Organization, 47 (1) (1993), 139–74,
and J. Samuel Barkin and Bruce Cronin, “The State and the Nation: Chang-
ing Norms and the Rules of Sovereignty in International Relations,” Interna-
tional Organization, 48 (1) (1994), 107–30. External sovereignty includes the
concept of “juristical statehood,” that states are organizations recognized by
established states as sovereign: Keohane, “Sovereignty, Interdependence, and
International Institutions,” p. 96.
75 Hendrik Spruyt, The Sovereign State and Its Competitors (Princeton, N.J.:
76 Robert O. Keohane and Joseph S. Nye, Power and Interdependence, 2nd edn.
(Glenview, Ill.: Scott Foresman and Company, 1989), p. 248.
77 Mark Zacher, “The Decaying Pillars of the Westphalian Temple: Implications
for International Order and Governance,” in James N. Rosenau and Ernst-
Otto Czempiel (eds.), Governance Without Government: Order and Change in
World Politics (Cambridge: Cambridge University Press, 1992), p. 60 (empha-
sis in original).
78 Nicholas Negroponte, Being Digital, 1st edn. (New York: Knopf, 1995).
79 S. K. Pandit, “Wired to the Rest of the World,” Financial Times, 10 January
1995, 12.
80 Susan Strange, The Retreat of the State: The Diffusion of Power in the World
Economy (Cambridge: Cambridge University Press, 1996).
81 Geoffrey L. Goodwin, “The Erosion of External Sovereignty?,” in Ghita
Ionescu (ed.), Between Sovereignty and Integration (New York: John Wiley and
Sons, 1974), p. 101.
82 Spruyt, Sovereign State and Its Competitors, p. 35.
83 James Anderson, “Nationalism and Geography,” in Anderson (ed.), The Rise of
the Modern State (Brighton, UK: Harvester Press, 1986), p. 117. See also Hed-
ley Bull, The Anarchical Society: A Study of Order in World Politics (New York:
Columbia University Press, 1977), and Gianfranco Poggi, The
State: Its Nature, Development and Prospects (Stanford: Stanford University
Press, 1990), among a large number of other authors discussing this
subject.
84 Ruggie, “Territoriality and Beyond,” 151.
85 Joseph Camilleri and Jim Falk, The End of Sovereignty? (Cheltenham, UK:
Edward Elgar, 1992), p. 238. Similarly, Krasner argues that the “central
characteristic” of the sovereignty regime is exclusive control over a given ter-

ritory: Stephen D. Krasner, “Westphalia and All That,” in Judith Goldstein
and Robert O. Keohane (eds.), Ideas and Foreign Policy: Beliefs, Institutions,
and Political Change (Ithaca, N.Y., and London: Cornell University Press,
1993), p. 259.
86 Ronald Deibert, “Harold Innis and the Empire of Speed,” Review of Inter-
national Studies, 25 (1999), 287.
87 As Braudel notes, their development was far from spontaneous: “The na-
tional market was a form of coherence imposed by both political ambi-
tions . . . and by the capitalist tensions created by trade . . . a political space
transformed by the state into a coherent and unified economic space . . . a
large-scale economy, territorialized so to speak, and sufficiently coherent for
governments to be able to shape and maneuver it to some extent”: Braudel,
Afterthoughts, p. 99, and Braudel, The Perspective of the World Civilization and
Capitalism: 15th–18th Century, vol. III (New York: Perennial Library, Harper
and Row, 1986), pp. 277, 294.
88 Richard N. Cooper, Economic Policy in an Interdependent World (Cambridge,
Mass.: MIT Press, 1986).
89 UNCTAD, World Investment Report: 1993, p. 118.
90 Ibid., p. 119.
91 Walter B. Wriston, The Twilight of Sovereignty (New York: Charles Scribners
and Sons, 1992).
92 John M. Stopford and Susan Strange, Rival States, Rival Firms: Competition
for World Market Shares (Cambridge: Cambridge University Press, 1991),
p. 40, and Richard O’Brien, Global Financial Integration: The End of
Geography (London: Pinter, 1992).
93 Holland and Dwyer, “Technobanking Takes Off,” 52–53.
94 Joseph S. Nye, Jr., Bound to Lead: The Changing Nature of American Power
(New York: Basic Books, 1990).
95 Ruggie, “Territoriality and Beyond,” 172. See also Manuel Castells and
Jeffrey Henderson, “Techno-economic Restructuring, Socio-political Pro-
cesses and Spatial Transformation: A Global Perspective,” in Henderson
and Castells (eds.), Global Restructuring and Territorial Development (Lon-
don: Sage Publishers, 1987), pp. 1–117.
96 Peter Dombrowski and Richard Mansbach, “From Sovereign States to
Sovereign Markets?” (working paper, Department of Political Science, Iowa
State University, 1998), p. 4.
97 Camilleri and Falk, End of Sovereignty?, p. 11. Similarly, Ruggie argues that
the concept of sovereignty is no more than the “doctrinal counterpart of the
application of single-point perspectival forms to the spatial organization of
politics”: Ruggie, “Territoriality and Beyond,” 159.
98 Poggi, The State, and Friedrich Kratochwil, “Of Systems, Boundaries, and
Territoriality: An Inquiry into the Formation of the State System,” World
Politics, 39 (1) (1986), 27–52.
99 Miles Kahler, International Institutions and the Political-Economy of Integration
(Washington, D.C.: Brookings Institution, 1995), p. 1.
100 Paul Kennedy, Preparing for the Twenty-first Century (New York: Random
House, 1993), and Ruggie, “Territoriality and Beyond.”
101 Martin Parker, “Post-modern Organizations or Postmodern Theory?”

102 See Stephen J. Kobrin, “Neo-Medievalism and the Post-Modern World
Economy” Journal of International Affairs, 51 (2) (Spring 1998), 361–87,
for an article-length discussion of this theme. Parts of this section are taken
from that article.
103 Robert Bartlett, The Making of Europe (Princeton: Princeton University
Press, 1993).
104 E. H. Carr, The Twenty Years’ Crisis, 1919–1939 (New York: Harper and Row
Publishers, 1964 [1946]), p. 229.
105 Bull, Anarchical Society.
106 John Gerard Ruggie, “Continuity and Transformation in World Politics:
Toward a Neorealist Synthesis,” World Politics, 35 (2) (January 1983), 274.
107 Spruyt, Sovereign State and Its Competitors.
108 Mark Schoofs and Michael Waldhotz, “New Regimen: AIDS-Drug Price
War Breaks Out in Africa,” Wall Street Journal, 7 March 2001.
109 James Rosenau, Turbulence in World Politics (Princeton, N.J.: Princeton Uni-
versity Press, 1990), p. 247.
110 Ruggie, “Continuity and Transformation in the World Polity,” 273.
111 Camilleri and Falk, End of Sovereignty?
112 Hirst and Thompson, “Problem of Globalization.”
113 Ruggie notes at least three ways in which systems of rule have differed from
the modern territorial state. First, they need not be territorial at all; second,
they need not be territorially fixed; and third, they may not entail mutual
exclusion: “Territoriality and Beyond,” 49.
114 Camilleri and Falk, End of Sovereignty?, p. 52.
4 Global finance, political authority, and
the problem of legitimation
Louis W. Pauly
The exercise of political authority through market mechanisms is not a

new phenomenon. The question of the extent to which such authority at
the global level becomes “privatized” in the contemporary era is, however,
a novel and important one. This chapter seeks to advance debate on
that question by offering an interpretation of recent developments in
international financial markets.
Power and authority in integrating markets

Mainstream economists now routinely express their puzzlement at the rise
and rapid expansion of “anti-globalization” protest movements around
the world. If the protestors would only learn some basic economics and
a little Ricardian trade theory, we often hear, they would realize that the
costs of international interdependence and even deepening integration
are overwhelmed by the benefits. It is, however, becoming very hard to
believe that simple ignorance is driving a spreading reaction to global
change. Mass demonstrations sweeping through relatively prosperous
cities like Seattle, Washington, D.C., Quebec City, and Genoa in the
early years of the twenty-first century reflected broad agenda-defining
coalitions among a variety of not necessarily convergent interests. But
they also suggested something deeper. Certainly protestors commonly
claimed that corporate power and vested interests were usurping public
space and dictating the agenda for public policy, that elected govern-
ments actually charged with making policy were becoming powerless,
and that an ideology of free market individualism was eroding social co-
hesion around the world. At the systemic level, their concerns seemed to
center on what we might call the constitution of international political
authority. Who makes the rules at the systemic level? Whose interests are
most effectively served? Who pays the price? The word “globalization”
itself led to such questions.
In his contribution to this book, Stephen Kobrin introduces empir-
ical material suggestive of the appropriateness, even urgency, of such
76
Global markets, national authority, legitimation 77
questions. The neomedieval metaphor he proposes neatly engages the

core issues of accountability, responsibility, and legitimacy at a time when
economic and political power appears to be dispersing. With the same
issues in mind, this chapter introduces a contrasting position.
I take contemporary international financial markets as my principal
empirical point of reference. Since Kobrin focuses on the globalization
of production, this choice partly explains the difference in our views. I
am more generally skeptical, however, about the inevitable erosion of
the authority of the modern state in the face of global economic change.
At the risk of a degree of exaggeration, for present purposes our two
positions may therefore be read as opposing arguments in a now well-
established debate. Beyond clarifying the contours of that debate within
the framework of this book, my objective in this brief essay is to indicate
some important points of reference for the next stage in its deepening.
The challenge, taken up most directly herein by Saskia Sassen and Claire
Cutler, is to craft useful tools for a more fundamental analysis of the
transformation of political authority as global economic integration pro-
ceeds. The editors advance that cause by proposing and explicating a
conceptual category they call market authority.
My thesis may be summarized as follows. In a world in which
financial regulatory power is dispersing and no particular national au-
thority is truly dominant, crossborder financial markets ultimately rest
today not on private authority but on interdependent public authori-
ties and, increasingly, on the delegated public authority of international
political institutions. When we speak of the authority of the market in
other than an ultimate sense, we appropriately mix private and public
categories. The fact that actual governments routinely obfuscate their
final authority in financial markets is no accident. Blurring the bound-
ary lines between public and private, indeed, is part of an intentional
effort to render opaque political responsibility for the wrenching ad-
justments entailed in late capitalist development. Understanding that
intentionality, its history, and the deeper reasons behind it can pro-
vide a useful starting point for assessing such policies as those aimed
at managing systemic risk or at redistributing adjustment burdens.1 It
can also help to explain the mandates and missions of international fi-
nancial institutions, like the International Monetary Fund and the World
Bank, which are taken by protestors and supporters alike to symbolize
a globalizing economic order. Finally, it can contribute to grounding
scholarly efforts aimed at developing richer theoretical propositions re-
garding the fundamental nature of authoritative transformation in that
order.
78 Louis W. Pauly
The “globalization” of finance

During the last quarter of the twentieth century, short-term capital flows
across the borders of advanced industrial countries expanded at a stag-
gering pace.2 Even more striking than the rising volumes tracked in every
magazine or journal article on the subject was the underlying normative
shift witnessed during that period of time. Indeed, the relative ease with
which such flows could occur represented a distinct reversal of the general
set of national policy preferences evident during the years immediately
following World War II. By some measures, the scale of international
capital movements was only recovering levels evident in the pre-World
War I period. In recent years, nevertheless, the explosive growth, global
reach, and speed of contemporary capital movements (short-term as well
as long-term) came widely to be seen as the harbinger of a new era.
Promising to some, and threatening to others, “global finance” became a
short-hand term to evoke the ideas of an integrated world economy and
a more deeply inequitable one.
In the wake of regional financial catastrophes in the late 1990s, it is in-
creasingly understood that the economic expansion potentially facilitated
by international financial markets comes with new risks for governments,
societies, and individuals. Two sets of concerns lay behind associated
policy debates in the early years of the succeeding decade. The first high-
lights the challenge of simultaneously harnessing the power of open
markets to accelerate economic development and growth while limiting
the political constraints and social costs linked to that openness. The un-
derlying dilemma is one of political legitimacy.3 The second brings to the
fore the difficulty of limiting the possibility of financial market failures
(or managing them effectively when they occur) when the power of pri-
vate actors is enhanced and the authority to regulate them is dispersed.
In each case, the political tensions are obvious. They are also not fully
resolvable, given the deeper structure of the international political econ-
omy at the dawn of the twenty-first century. In such a world, the logic
of markets suggests globalism, while the logic of politics remains deeply
marked by distinctly national identities. Heraclitus said that we can never
step into the same stream twice, but the international financial flows we
are now seeing certainly bear a distinct resemblance to those witnessed a
century ago.4
The cause of freer trade won renewed rhetorical support after the
cataclysm beginning in 1914 abruptly halted the first age of “global”
finance, which was really mainly a trans-Atlantic phenomenon. Rhetoric
was translated into successful policy only after an even greater catastro-
phe ended in 1945. The interdependent international economic order
deliberately built in its aftermath by the victorious allies (minus the

Soviet Union and China) mainly through the restoration and expansion
of world trade was to be underpinned by a system of stable exchange rates.
The United States and its allies designed the “Bretton Woods” system
in 1944 to avoid both the perceived rigidities of the nineteenth-century
gold standard and the undisciplined currency manipulations commonly
deemed to have contributed to the depth and duration of the Great
Depression.
During the following decades, the explicit policy preference for freer
trade came ever more widely to be supplemented by official efforts to re-
duce impediments to foreign direct investment. The vast postwar expan-
sion in trade (in both goods and services) and in crossborder investment
in plant and equipment had far-reaching effects. One of them – currency
convertibility in the current and/or capital accounts of national pay-
ments balances – cannot be separated from that broader policy movement
toward more liberal trade and investment regimes.
Production, trade, and investment must be financed. If resulting fi-
nancial claims are freely convertible across national currencies, liquid
balances in governmental, corporate, or personal accounts can be used
for a broad range of purposes. In advanced economies, in fact, there
exists an historical tendency for purely financial operations to grow at a
rate far exceeding tangible business requirements. Much of this growth
reflects speculation, which can either stabilize or destabilize other eco-
nomic variables. In practical terms, it has proven impossible to draw a
clear and unassailable dividing line between the use of convertible finan-
cial claims, on the one hand, prudently to hedge business risks and, on
the other, purely to gamble. To many observers, therefore, the economic
history of the latter decades of the twentieth century has been decisively
marked by crossborder markets for short-term capital taking on a life
of their own entirely disconnected from real political economies where
goods, services, and new technologies are produced. The truth is more
complicated.
Throughout the post-World War II period, albeit at different paces
and with occasional backsliding, the United States, Canada, and a num-
ber of European states deliberately reduced direct controls and taxes
on financial transactions, loosened longstanding regulatory restrictions
on financial intermediaries, permitted the expansion of lightly regulated
“offshore” financial markets, and oversaw the introduction of new tech-
nologies that sped up capital movements and stimulated the development
of innovative financial products.5 In the 1970s, Japan cautiously joined
the trend.6 Throughout the 1980s and 1990s, many newly industrializing
countries followed.
80 Louis W. Pauly
Again, though, relatively open financial markets were not altogether

new in world politics. Conditions approximating today’s “global finance”
existed before 1914 among the most advanced economies and their de-
pendencies. The extremities of war and economic depression succeeded
in disrupting a system of economic adjustment that accommodated, even
necessitated, international capital flows. In theory, if not always in prac-
tice, the behavioral norms embedded in the international monetary sys-
tem prescribed relatively passive domestic policy responses to external
economic changes. In fact, stability in that system proved episodic.
Among other shifts in the tectonic plates of world politics, the tumul-
tuous era beginning in 1914 witnessed the gradual rise of the modern
democratic nation-state, the citizens of which came to expect that insti-
tution to ensure not only their military security, but also their increasingly
broadly defined economic security. Those expectations defined the ter-
rain upon which the Bretton Woods consensus evolved in practice. The
contemporary reconstruction of “global” capital markets is intimately
linked to the disruption of that consensus in the 1970s and the dawn of
a new era of flexible exchange rates. As the twenty-first century opened,
however, it was not yet evident that the expectations of citizens con-
cerning the responsibilities of democratic nation-states had substantively
changed. Much rhetoric to the contrary notwithstanding, national wel-
fare states continued to exist even as their financing now confronted the
reality of more open capital markets. The true historical novelty of that
development was to combine the policy preferences supporting those
markets with the acceptance of political responsibility by states for the
total security of their citizens.
Often abstracting from the fact that governments can let their exchange
rates float, economic commentators, prominent bankers, and conserva-
tive politicians thereafter frequently underscored the internal “discipline”
on autonomous state action implied by international capital mobility. If
that discipline implied cutting back the welfare states of the post-World
War II era, they asserted, then it had to be done. Many of their opponents
on the left may have disliked such a conclusion, but they intuitively un-
derstood its logic. A mounting body of popular literature written both by
conservatives and radicals, indeed, envisaged the consolidation of a new
global order, the borderless order of advanced capitalism.
Whether they embraced it or loathed it, such a vision tended to be
evoked in the language of inevitability. Enjoining governments to yield to
signals emanating from the “global market,” this language implied that
a profound shift in policy-making authority was necessarily taking place,
a shift away from the national level. Proponents typically extolled the
surrender of the retrograde idea of “sovereignty” to the rational economic
logic of markets beyond national control. Opponents might not have

appreciated such a conclusion, but their own research often bolstered the
notion that transnational coalitions beyond the nation-state increasingly
exercised determinative influence over a widening range of economic and
social policies.7
National political authority and international

institutions
The concept of sovereignty in international relations has always been
contested.8 Its association over time with the institution of the state, more-
over, is linked with a number of material and normative transformations.9
But conflating that concept with the notion of policy autonomy, as is com-
monly done, blurs an important distinction. In a financially integrating
world, a turning away from deeper intimacy by legally sovereign states or
by the collectivity of states remains entirely conceivable, if increasingly
costly. Indeed, some did turn away as severe debt crises confronted them
in the 1980s and 1990s, only to return to more liberal policy stances after
the crises dissipated.
In practical terms, to be sure, most states now confront tighter eco-
nomic constraints – or clearer policy tradeoffs – as a consequence of a
freer potential flow of capital across their borders. The erosion of their
absolute freedom to pursue internally generated policies is the flipside of
the opportunities for accelerated growth (beyond that capable of being
financed by domestic savings) presented by that same flow of capital.
Again, the phenomenon itself is not new, and it has boded neither well
nor ill for the legal principle of sovereignty. Instead, what is new is the
widespread perception that all states, all societies, and all social groups
are now similarly affected by the forces of global integration. The his-
torical record belies such a perception, which blurs important distinc-
tions between and within states. Underneath much of the overt discourse
on vanishing sovereignty and the inexorable logic of efficient markets, it
seems, there lies a covert discourse on power, hierarchy, and legitimacy,
or, in other words, on political authority.
Exchange rate regimes tell us a great deal about the internal choices
states make when they seek to harness the benefits of economic openness
without incurring unacceptable costs. The sum of those choices during
the past few decades laid the foundation for contemporary crossborder
financial markets. Those markets do not reflect economic happenstance.
They are the consequences of a political project tied directly to the do-
mestic priorities and external strategies of leading states. Open capital
markets increase the range of external policy choices for those states.
82 Louis W. Pauly
Within them, such markets expand opportunities for powerful firms and a
widening group of citizens. Through those markets, in turn, the priorities
and normative preferences of those states, those firms, and those citizens
are projected onto other states. The “silent revolution” of economic
liberalization sweeping through much of the developing world in the
latter years of the twentieth century was intimately related both to the
material implications of that projection and to a convergent ideological
transformation.10
Nevertheless, simple conclusions in this regard remain unsatisfying.
Even if it is shrinking, there remains room for national variation in re-
sponse to the opportunities and constraints presented by more open cap-
ital markets. By their “private” nature, moreover, such markets obscure
distributive issues. Indeed, this is arguably the principal reason why their
existence correlates so closely with democratic governing systems. Some
will win, some will lose, dominant market participants will increasingly
define standards for others, but the political blame for such outcomes
will be diffused. As the twentieth century came to a close, nonetheless, a
series of financial crises reminded everyone that those markets could not
and did not manage themselves. Throughout the preceding five decades,
it was precisely in this kind of environment that certain new kinds of inter-
national institutions were designed, institutions promising feasible man-
agement, not inevitable integration. The problem of systemic legitimation
needs to be addressed in just such a context.
The legitimacy of a globalizing economy

Following World War II, the victorious states, minus the Soviet Union,
attempted to craft a new world order. John Ikenberry is quite right in
asserting that the initial dream of a global market at the center of that order
was never practicable. Anne Marie Burley and John Ruggie, moreover,
quite plausibly argue that the dream was originally cast in terms of the
modified liberalism of the New Deal.11 Certainly after 1947, however, the
real order combined a military alliance, national economic development,
a managed trading system, and an underlying assumption that markets
could and would eventually emulate the structure of American markets.
More open capital markets on the US model followed two decades later.
It cannot, however, be said that states ever made stark and irrevocable
decisions to favor financial openness above all other economic objec-
tives. They simply adjusted a widening range of internal policies first
to accommodate and then to promote potentially more mobile interna-
tional capital flows. Simultaneously, and not by coincidence, they also
shaped or reshaped the mandates of international organizations like the
International Monetary Fund (IMF), the World Bank, the Bank for Inter-
national Settlements (BIS), the Organization for Economic Cooperation
and Development (OECD), and less formal groupings like the G-8, the
Financial Stability Forum, and ad hoc task forces on various monetary
and financial issues.
The architects of the original Bretton Woods system imagined a rule-
based form of international cooperation. An explicit legal agreement
among them specified their duty to collaborate through one particular
multilateral organization – the IMF. The original Articles of Agreement
of the IMF specified certain rules to guide the exchange rate policies of
members and gave the organization the power both to sanction justified
changes in exchange rates and to provide temporary financing in cases
where such changes were not required. Governments did not formally
have to coordinate their internal monetary and fiscal policies in order to
keep their exchange rates stable. The rigor of exchange rate rules, it was
hoped, would automatically promote necessary adjustments in internal
policies.
In practice, the rules of the game were often honored in the breach
and the IMF was frequently marginalized. When the system worked, it
actually depended upon a low degree of international capital mobility
and upon the willingness of the United States to keep its import markets
open and its domestic price level stable, thereby providing to its trading
partners an adequate supply of liquidity at a reliable price. In any event,
technical innovation and policy liberalization in leading currency mar-
kets, as well as the financial implications of rapidly rising foreign direct
investment, eventually combined to make it ever more difficult to control
short-term capital movements. At the same time, inflationary macroeco-
nomic policies in the United States eventually rendered the country an
unreliable monetary anchor. It remained absolutely clear, however, that
an integrating world economy required adequately firm political founda-
tions. Since they could be provided only by public authority, and no single
public authority appeared able or willing, a continuation of the post-
war experiment seemed thereafter to depend upon reliable collaboration
among various public authorities.
Since the 1970s, stabilizing key exchange rates by way of concerted
action or negotiated policy coordination has occasionally been tried. But
the major powers have most often relied on the assumption that exchange
rates would stabilize in the long run if anti-inflationary macroeconomic
polices were pursued independently. In short, they became convinced
that internal self-discipline, now modestly reinforced by formal surveil-
lance procedures within international organizations like the IMF and the
OECD, would have salubrious external effects. Such a shared consensus
84 Louis W. Pauly
was logically required if a new order in which international capital mobil-

ity had de facto priority was not to prove politically disruptive or patently
illegitimate.
To be sure, many states continued to rely on various measures to influ-
ence the inflow or outflow of short-term capital. In the wake of disruptive
bouts of capital flight in a number of countries, for example, such mea-
sures would sometimes be acquiesced in by other states and by the IMF.
But that approval, whether formal or tacit, was almost always condi-
tional on an understanding that new capital controls would be tempo-
rary. The reluctance of states unambiguously to embrace what we might
call “the capital mobility norm,” their handling of periodic emergencies
in international capital markets in an ad hoc manner, and their prefer-
ence not to designate clearly an international organizational overseer for
truly integrated capital markets nevertheless suggests deeper concerns.
Continuing controversies on all of these points revolve around traditional
issues of power and authority. The legitimacy of a new order tending in
the direction of global financial integration remains in question. More
fundamentally, the struggle suggests that the architects of such an or-
der cannot easily calibrate emergent market facts with persistent political
realities.
One doesn’t need to be an extremist to sense the dimensions of the
problem. One only needs to observe market and governmental reactions
to the financial crises that characterize any order that relies on private
markets. Such markets may be efficient in the long run, but they have
always been prone to bouts of mass hysteria in the short run. Since 1945,
prompted by periodic emergencies, advanced industrial states regularly
engaged in efforts to manage that proclivity. In an interdependent finan-
cial order, crises with potentially devastating systemic effects can begin
in all but the poorest countries.
From Mexico in 1982 and 1995 to Russia, East Asia, and Latin America
in the late 1990s, many national disasters threatened to become catas-
trophes for the system. But who was truly responsible for the necessary
bailouts and for their sometimes perverse effects? Who would actually be
held responsible if the panicked reaction to financial turbulence in one
country began to bring down large commercial and investment banks and
bank-managed investment funds around the world? “No one,” a number
of practitioners and analysts now say, for the authority to manage global fi-
nance has dispersed into the supranational ether or has been privatized.12
This is a dubious response. Despite the screen of accountability always
implied in regimes aiming to advance public policy agendas through the
indirect means of private markets, actual crises ever since the end of the
Bretton Woods regime continued to suggest that national governments

would be blamed and that they would respond.
The desire to avoid such an end game in the new world of international
capital mobility provides the driving force behind persistent multilateral
and regional efforts to clarify, strengthen, and rationalize the mandates of
international financial institutions. The same dynamic reinforces inter-
nal pressures within many states to move toward “independent” central
banks. In the best case, technocratic agencies promise to promote ade-
quate standards of financial regulation and supervision around the world,
design functional programs for crisis avoidance and crisis management,
and provide mechanisms for states credibly to collaborate with one an-
other for mutual benefit. (Such specific issues constitute key items on the
contemporary policy agenda now commonly labeled “constructing a new
financial architecture.”)13 In the worst case, such agencies can take on
the role of scapegoats, thus serving as a buffer in the political crises that
would inevitably follow any systemic financial catastrophe. What techno-
cratic agencies have difficulty addressing, however, are basic questions of
social justice. Not only are standards across diverse societies themselves
still diverse, but those agencies are charged with helping to manage a
system in which the mobility of capital is not matched by the mobility of
people.
Justice and legitimate political authority are inextricably linked. At its
core, therefore, that system reflects the fact that the governments of states
cannot shift ultimate political authority, to the level of governance sug-
gested by the term “global finance.” Perhaps they do not yet need to
do so, because the term exaggerates the reality of international financial
integration at the dawn of a new century.14 Surely, however, the vast ma-
jority of their citizens do not yet want them to do so. Only in Western
Europe, within the restricted context of a regional economic experiment
still shaped by the legacy of the most horrendous war in world history,
was a shift in power and authority beyond the national level in sight. And,
even there, the fundamental construction of an ultimate locus of author-
ity remained highly controversial.15 Elsewhere in the industrial world,
intensifying interdependence remained the order of the day as the cit-
izens of still national states sought the benefits of international capital
mobility without paying the ultimate political costs implied by true inte-
gration. To them, continuing turbulence in so-called emerging markets
seemed like a distant roll of thunder. Their perennial hope was that the
storm would, at best, gradually dissipate or, at worst, remain far away.
There was no evidence, however, that they had resigned themselves to
simply weathering such a storm if it ever did threaten them directly. On
86 Louis W. Pauly
the contrary, experience suggested that, at the core of the system, duly
constituted political authorities stood ready to respond decisively. They
appeared to understand intuitively that markets were a tool of policy, not
a substitute for it.16
Implications
By way of conclusion, let me make one policy-related observation and
one analytical implication for the principal issue explored in this book.
It follows from my last point that the calls of right-wing commentators
to abolish agencies like the IMF rest on a fundamental, and unrealistic,
assumption: that capital mobility and flexible exchange rate regimes will
conduce to national and global stability because states will not abuse
the macroeconomic policy autonomy they thereby gain. And even if
certain governments do threaten to abuse that autonomy, the problem
can effectively be handled by domestic monetary rules and central bank
independence. A less optimistic position seems more plausible.
At base, free market enthusiasts contend that IMF-like agencies cre-
ate moral hazard. My own view is that moral hazard is unavoidable when
democratic welfare states are driven by overwhelming domestic pressures
and interests to temper the vagaries of financial markets. All that can be
done is to displace that hazard from the domestic arena to the interna-
tional arena or vice versa. In bad times, the fundamental role of crisis
manager must be filled if markets are not to disintegrate. In good times,
a less ambitious but still useful role exists for an overseer of the process
of interdependent adjustment to economic change.
With the resurrection of integrating financial markets in the contem-
porary period, an institution like the IMF becomes more, not less, im-
portant: not because of the economics, but because of the politics. If the
IMF were abolished, a new agency capable of doing similar things, espe-
cially in an emergency, would have to be created: unless, of course, the
US Treasury, the German Finance Ministry, the Japanese Ministry of
Finance, or other public authorities did the job directly. To imagine that
the role could in fact be left unfilled and that everything would be just
fine is an effort worthy of Voltaire’s Dr. Pangloss.
What role, precisely? Ask Robert Rubin, then US treasury secretary, or
Bill McDonough of the Federal Reserve Bank of New York in 1998 when
the Long Term Capital Management hedge fund threatened to set the
clock back to 1929. Ask US central bank governor Alan Greenspan in the
early 1990s when US money center banks were dangerously undercapi-
talized and international losses could have pushed several over the brink.
Ask Jacques de Larosière, managing director of the IMF in 1982 when
Mexico declared a debt moratorium.17 In such situations, it is always easy

to say, “Let the market work.” But it is politically unthinkable actually
to do it. “The market,” in this case the post-1970s experiment in global
financial integration, is itself an unfinished political project of the ad-
vanced industrial states. Stabilizing that market is an unavoidable aspect
of that experiment, and it involves two dimensions: managing systemic
risk and ensuring that modicum of symmetry in adjustment burdens re-
quired to sustain the logic of interdependence.
The term “symmetry” is used in this policy arena as a rough synonym
for fairness among creditors and debtors. Consideration of it recalls the
central idea behind this book. As the concept of market authority pro-
posed herein is developed in the future, the material outlined in this chap-
ter suggests its historical contingency. It also reminds us of the irreducible
expectation of justice that the claim of authority entails.
The authority to stabilize globalizing financial markets has an ultimate
quality to it, a quality invisible when those markets function reasonably
well. There is no reason why it cannot be delegated for a time to the
private sector, and there are very good reasons having to do with po-
litical accountability why such delegation might even become common-
place. Self-regulatory organizations, as oxymoronic as the term sounds,
are nothing new in the broader international economy. The International
Chamber of Commerce, for example, has for a century now promoted
voluntary codes of conduct in this or that area of business activity. In the
financial arena, recent examples of such delegation include private sector
efforts to provide some common international structure for markets in
financial derivatives and for international payments.
When such efforts accomplish their goals, catastrophes are avoided, few
notice, and public officials willingly recede into the shadows. But when
such efforts fail, or threaten to fail, the overarching issue of social justice
returns to counterbalance ideological demands for ruthless efficiency.
One of two things then happens. Agents of legitimate public authority
reassert their ultimate regulatory power, or, if they truly cannot, markets
collapse.18
The latter possibility has, ever since 1929, concentrated the minds
of financial regulators at the core of the global economy. The desire to
avoid it correlates with determination simultaneously to obfuscate their
authority and to preserve their ultimate room for maneuver. In integrating
crossborder financial markets, at least, the private element in market au-
thority might just be too obvious. It certainly calls out for more extended
theorization.
Mainstream theories in international political economy, sometimes la-
beled “liberal internationalist,” need to engage more deeply the kinds
88 Louis W. Pauly
of structural theories suggested by Saskia Sassen, Claire Cutler, and

the editors of this volume.19 A plausible insight, however, does provide
that mainstream with a promising starting point for future debate. The
fragility of globalizing financial markets, occasionally glimpsed, and the
evolving mandates of the international financial institutions now inti-
mately linked to them draw attention to the fact that the public author-
ities lying beneath their surface seem now to require a high degree of
cooperation among themselves if their ultimate regulatory power is not
to prove illusory. If such cooperation fails, mainstream theories of inter-
national political economy suggest that the rise of fully privatized and
self-sustaining markets of global scale would be a highly unlikely out-
come. Future development of the concept of market authority in the era
of globalization does not end here, but it could productively begin by
taking such a position clearly into account.

1 By bounding my analysis empirically, I do not preclude the possibility that
the essential legitimation of private power can be construed differently, espe-
cially against the backdrop of broader conceptions of social space and political
rule and their evolution over time. Some of the sociological work cited by my
colleagues in this book, or of students of international regimes commonly re-
ferred to as strong cognitivists or strong constructivists, relatedly underlines
the essential malleability of political identity over long historical periods. For
useful surveys, see, for example, George M. Thomas, et al. (eds.), Institutional
Structure: Constituting State, Society and the Individual (Newbury Park, Cal.:
Sage, 1987); and Andreas Hasenclever, Peter Mayer, and Volker Rittberger,
Theories of International Regimes (Cambridge: Cambridge University Press,
1997), ch. 5.
2 Some of the following develops material introduced in my “Capital Mobility
and the New Global Order,” in Richard Stubbs and Geoffrey Underhill (eds.),
Political Economy and the Changing World Order, 2nd edn. (Oxford and New
York: Oxford University Press, 2000), pp. 119–28.
3 For background, see Geoffrey Underhill, “Keeping Governments out of Poli-
tics: Transnational Securities Markets, Regulatory Cooperation, and Political
Legitimacy,” Review of International Studies, 21 (3) (1995), 251–78; Louis W.
Pauly, “Capital Mobility, State Autonomy, and Political Legitimacy,” Journal
of International Affairs, 48 (2) (Winter 1995), 369–88; and Ian Hurd, “Legit-
imacy and Authority in International Politics,” International Organization, 53
(2) (Spring 1999), 379–408.
4 See Craig N. Murphy, International Organization and Industrial Change: Global
Governance Since 1850 (New York: Oxford University Press, 1994); Louis W.
Pauly, Who Elected the Bankers? Surveillance and Control in the World Economy
(Ithaca, N.Y.: Cornell University Press, 1997); and Ralph Bryant, Turbulent
Waters: Cross-Border Finance and International Governance (Washington, D.C.:
Brookings Institution, forthcoming).
5 See Eric Helleiner, States and the Reemergence of Global Finance (Ithaca, N.Y.:
Cornell University Press, 1994).
6 Henry Laurence takes the case forward into the 1990s in Money Rules: The
New Politics of Finance in Britain and Japan (Ithaca, N.Y.: Cornell University
Press, 2001).
7 See, for example, Robert O’Brien, Anne Marie Goetz, Jan Aart Scholte,
and Marc Williams (eds.), Contesting Global Governance: Multilateral Economic
Institutions and Global Social Movements (Cambridge: Cambridge University
Press, 2000).
8 See Stephen D. Krasner, Sovereignty: Organized Hypocrisy (Princeton, N.J.:
9 See Thomas J. Biersteker and Cynthia Weber (eds.), State Sovereignty as
a Social Construct (Cambridge: Cambridge University Press, 1996); and
Rodney Bruce Hall, National Collective Identity: Social Constructs and Inter-
national Systems (New York: Columbia University Press, 1999).
10 See James Boughton, Silent Revolution: The International Monetary Fund, 1979–
1989 (Washington, D.C.: International Monetary Fund, 2001).
11 G. John Ikenberry, “Rethinking the Origins of American Hegemony,” Political
Science Quarterly, 104 (3) (1989), 375–400; Ikenberry, After Victory (Prince-
ton, N.J.: Princeton University Press, 2000); Anne-Marie Burley, “Regulating
the World: Multilateralism, International Law, and the Projection of the New
Deal Regulatory State,” in John G. Ruggie (ed.), Multilateralism Matters (New
York: Columbia University Press, 1993), pp. 125–56; and Ruggie, Winning
the Peace (New York: Columbia University Press, 1996).
12 See, for example, Susan Strange, Mad Money (Ann Arbor, Mich.: University of
Michigan Press, 1998). Jerry Cohen’s 1998 book seems to move in a similar
direction when he diagnoses a “new geography of power” in international
monetary affairs. But one must separate out his comments on the supply side
of money from the demand side. On the demand side, he sees a profound
blurring of the nature of monetary power in many states. On the supply side,
however, he depicts more conventionally a movement from a unitary monetary
order to a tripolar or multipolar order – all entirely based upon traditional
public authority. See Benjamin J. Cohen, The Geography of Money (Ithaca,
N.Y.: Cornell University Press, 1998).
13 See, for example, Barry Eichengreen, Toward a New International Financial
Architecture (Washington, D.C.: Institute for International Economics, 1999);
Council on Foreign Relations Independent Task Force, Safeguarding Pros-
perity in a Global Financial System (Washington, D.C.: Institute for Inter-
national Economics, 1999); Morris Goldstein, “Strengthening the Interna-
tional Financial Architecture: Where Do We Stand?,” Working Paper 00–8
(Washington, D.C.: Institute for International Economics, 2000).
14 See Bryant, Turbulent Waters.
15 For a recent treatment of the underlying theoretical and policy issues in-
volved, see Michael Th. Greven and Louis W. Pauly (eds.), Democracy Beyond
the State? The European Dilemma and the Emerging Global Order (Lanham,
Md., and Toronto, Ont.: Rowman & Littlefield Publishers and University of
Toronto Press, 2000).
90 Louis W. Pauly
16 For development of this point in a related context, see Paul N. Doremus,

William W. Keller, Louis W. Pauly, and Simon Reich, The Myth of the Global
Corporation (Princeton, N.J.: Princeton University Press, 1998).
17 Highly relevant here is Stanley Fischer, “On the Need for an International
Lender of Last Resort,” Essays in International Economics, No. 220 (Interna-
tional Economics Section, Department of Economics, Princeton University,
Princeton, N.J., November 2000).
18 Recall here Weber’s classic understanding of political legitimacy as the belief
that the authority to issue commands – to compel obedience – is matched
by perceptions of an obligation to comply among the recipients of those
commands.
19 Liberal internationalist theories within IPE are well reviewed and critiqued in
Robert Gilpin, Global Political Economy (Princeton, N.J.: Princeton University
Press, 2001).
5 The state and globalization
Saskia Sassen
This chapter attempts to recover the ways in which the state participates
in governing the global economy in a context increasingly dominated
by deregulation, privatization, and the growing authority of non-state
actors.1 A key organizing proposition, derived from my previous work on
global cities,2 is the embeddedness of much of globalization in national
territory, that is to say, in a geographic terrain that has been encased
in an elaborate set of national laws and administrative capacities. The
embeddedness of the global requires at least a partial lifting of these
national encasements, and hence signals a necessary participation by the
state, even when it concerns the state’s own withdrawal from regulating
the economy.
The question becomes one of understanding the specific type of au-
thority/power this participation might entail for the state or, more pre-
cisely, for the particular state institutions involved. Does the weight of
private, often foreign, interests in this specific work of the state become
constitutive of that authority and indeed produce a hybrid that is neither
fully private nor fully public? My argument is that, indeed, we are seeing
the incipient formation of a type of authority and state practice that en-
tail a partial denationalizing of what had been constructed historically as
national.3 This conceptualization introduces a twist into the analysis of
private authority because it seeks to detect the presence of private agendas
inside the state, that is, inside a domain represented as public. However,
it differs from an older scholarly tradition on the captured state which
focused on cooptation of states by private actors, because it emphasizes
the privatization of norm-making capacities and the enactment of these
norms in the public domain.
The purpose here is, then, to understand and specify a particular as-
pect of globalization and the state which is lost in what are typically rather
dualized accounts of this relation; in such accounts, the spheres of influ-
ence of respectively the national and the global, or of state and non-state
actors, are seen as distinct and mutually exclusive. While it may indeed be
the case that most components of each of these are separate and mutually
91
92 Saskia Sassen
exclusive, there is a specific set of conditions or components that does not

fit in this dual structure. Key among these are some components of the
work of ministries of finance, central banks, and the increasingly special-
ized technical regulatory agencies, such as those concerned with finance,
telecommunications, and competition policy. In this regard, then, my po-
sition is not comfortably subsumed under the proposition that nothing
has much changed in terms of state power, nor under the proposition of
the declining significance of the state.
An important methodological assumption here is that focusing on eco-
nomic globalization can help us disentangle some of these issues precisely
because, in strengthening the legitimacy of claims by foreign investors
and firms, it adds to and renders visible the work of accommodating
their rights and contracts in what remain basically national economies.
However, these dynamics can also be present when privatization and
deregulation concern native firms and investors, even though in much of
the world privatization and deregulation have been constituted through
the entry of foreign investors and firms.
In the first section I will introduce a number of conceptual issues about
the denationalizing of specific forms of state authority which arise out of
the at least partial location of global processes in national institutional
orders. The second and third sections will discuss key features of this
locational and institutional embeddedness of the global economy. And the
final section will sketch out the particular substance and conditionality of
this new mode of authority which, though housed or located in national
state capacities and institutions, is not national in the way we had come to
understand this feature of states over the last century. The empirical focus
for much of the examination is confined to states under the so-called rule
of law, and especially the United States.
Embeddedness and denationalization

A number of scholars have addressed various dimensions of this partici-
pation by the state. For some, it shows that globalization is made possible
by states, and that, hence, not much has changed for states and the in-
terstate system; the present era is merely a continuation of a long history
of changes that have not altered the fundamental fact of state primacy.4
There is today also a growing literature which interprets deregulation
and privatization as the incorporation by the state of its own shrinking
role;5 in its most formalized version this position emphasizes the state’s
constitutionalizing of its own diminished role. In this literature economic
globalization is not confined to capital crossing geographic borders as
The state and globalization 93
is captured in measures of international investment and trade, but is in

fact conceptualized as a politico-economic system. And there is, finally, a
growing literature, represented by various chapters in this book, that em-
phasizes the relocation of national public governance functions to private
actors within both national and transnational domains.
The focus developed in this chapter adds yet another dimension to this
growing and diverse scholarship by emphasizing that state participation is
producing a denationalizing of particular components of state authority
which remain, nonetheless, inside the state. As states participate in the
implementation of the global economic system they have, in many cases,
undergone significant transformations. The accommodation of the inter-
ests of foreign firms and investors entails a negotiation. At the heart of this
negotiation is the development inside national states – through legislative
acts, court rulings, executive orders – of the mechanisms necessary for
the reconstitution of certain components of national capital into “global
capital,” and necessary to accommodate new types of rights/entitlements
for foreign capital in what are still national territories in principle under
the exclusive authority of their states.6 The mode of this negotiation in the
current phase has tended in a direction that I describe as a denationalizing
of several highly specialized national institutional orders.
These particular transformations inside the state are partial and incip-
ient but strategic. For instance, such transformations can weaken or alter
the organizational architecture for the implementation of international
law insofar as the latter depends on the institutional apparatus of national
states. Further, they have also created the conditions whereby some parts
of national states actually gain relative power7 as a result of that participa-
tion in the development of a global economy. As particular components of
national states become the institutional home for the operation of some
of the dynamics that are central to globalization, they undergo change
that is difficult to register or name. This is one instantiation of what I call
a process of incipient denationalization – that is, of specific components
of national states that function as such institutional homes.
This partial, often highly specialized, or at least particularized, dena-
tionalization can also take place in domains other than that of economic
globalization, notably the more recent developments in the human rights
regime that allow national courts to sue foreign firms and dictators, or
that grant undocumented immigrants certain rights. Denationalization is,
thus, multivalent: it endogenizes global agendas of many different types
of actors, not only corporate firms and fianancial markets, but also hu-
man rights objectives. In this chapter I will confine myself to economic
globalization.
94 Saskia Sassen
The question for research then becomes: what is actually “national” in

some of the institutional components of states linked to the implemen-
tation and regulation of economic globalization? The hypothesis here is
that some components of national institutions, even though formally na-
tional, are not national in the sense in which we have constructed the
meaning of that term over the past hundred years.
One of the roles of the state vis-à-vis today’s global economy has been
to negotiate the intersection of national law and foreign actors – whether
firms, markets, or supranational organizations. This raises a question as
to whether there are particular conditions that make execution of this
role in the current phase distinctive and unlike what it may have been
in earlier phases of the world economy. We have, on the one hand, the
existence of an enormously elaborate body of law developed mostly over
the past hundred years, which secures the exclusive territorial authority of
national states to an extent not seen in earlier centuries, and, on the other,
the considerable institutionalizing, especially in the 1990s, of the “rights”
of non-national firms, the deregulation of crossborder transactions, and
the growing influence/power of some of the supranational organizations.
If securing these rights, options, and powers entailed an even partial
relinquishing of components of state authority as constructed over the
past century, then we can posit that this sets up the conditions for a
necessary engagement by national states in the process of globalization.
We need to understand more about the nature of this engagement than
is represented by concepts such as deregulation. It is becoming clear that
the role of the state in the process of deregulation involves the production
of new types of regulations, legislative items, court decisions8 – in brief,
the production of a whole series of new “legalities.”9 The background
condition here is that the state remains as the ultimate guarantor of the
“rights” of global capital, i.e., the protector of contracts and property
rights, and, more generally, a major legitimator of claims.10 In this regard
the state can be seen as incorporating the global project of its own shrink-
ing role in regulating economic transactions11 and giving it operational
effectiveness and legitimacy.12 The state here can be conceived of as rep-
resenting a technical administrative capacity which cannot be replicated
at this time by any other institutional arrangement; although not in all
cases,13 this is a capacity backed by military power, with global power in
the case of some states. The objective for foreign firms and investors is to
enjoy, transnationally, the protections traditionally exercised by the state
in the national realm of the economy for national firms, notably guar-
anteeing property rights and contracts. How this gets done may involve
a range of options. To some extent this work of guaranteeing is becom-
ing privatized, as is signaled by the growth of international commercial
arbitration,14 and by key elements of the new privatized institutional or-

der for governing the global economy.15
It is in fact some states, particularly the United States and the UK,
that are producing the design for these new legalities, i.e., items derived
from Anglo-American commercial law and accounting standards, and
are hence imposing these on other states given the interdependencies at
the heart of the current phase of globalization. This creates and imposes
a set of specific constraints on the other participating states.16 Legisla-
tive items, executive orders, adherence to new technical standards, and
so on will have to be produced through the particular institutional and
political structures of each of these states. In terms of research and the-
orization, this is a vast uncharted terrain: it would mean examining how
that production takes place and gets legitimated in different countries.
This signals the possibility of crossnational variations (which then would
need to be established, measured, interpreted). The emergent, often im-
posed consensus in the community of states to further globalization is
not merely a political decision: it entails specific types of work by a large
number of distinct state institutions in each of these countries. Clearly,
the role of the state will vary significantly depending on the power it may
have both internally and internationally.
The US government as the hegemonic power of this period has led/
forced other states to adopt these obligations toward global capital. And,
in so doing, it has contributed to strengthening the forces that can chal-
lenge or destabilize what have historically been constructed as state
powers.17 In my reading this holds both for the United States and for
other countries. One way in which this becomes evident is in the fact
that, while the state continues to play a crucial, though no longer exclu-
sive, role in the production of legality around new forms of economic
activity, at least some of this production of legalities is increasingly feed-
ing the power of a new emerging structure marked by denationalization
or privatization of some of its components.
A crucial part of the argument is the fact of the institutional and loca-
tional embeddedness of globalization. Specifying this embeddedness has
two purposes. One is to provide the empirical specification underlying
my assertion that the state is engaged, which in turn feeds the proposi-
tion about the denationalizing of particular state functions and capacities.
The second purpose is to signal that, given this embeddeness, the range
of ways in which the state can be involved is far broader than what it is
today, when it is largely confined to furthering economic globalization.
Conceivably state involvement could address a whole series of global is-
sues, including the democratic deficit in the multilateral system governing
globalization.18
96 Saskia Sassen
The locational and institutional embeddedness

of the global economy
Some of the key features of economic globalization allow for a broader
range of forms of state participation than is generally recognized in analy-
ses of the declining significance of the state. There are at least two distinct
issues here. One is that the current condition, marked by the ascendance
of private authority, is but one possible mode of several in which the
state could be articulated. The other is that this current condition still
leaves room for new forms of participation by the state as well as new
forms of crossborder state collaboration in the governing of the global
economy.19 Among these are forms of state participation aimed at recog-
nizing the legitimacy of claims for greater social justice and democratic
accountability in the global economy, although both would require ad-
ministrative and legal innovations.20 The effort here is then not so much
to show the enormous power and authority amassed by global markets
and firms, but rather to detect the particular ways in which the power and
authority of the state does and could shape and reshape those particular
forms of private economic power.
There are three features of the global economy I want to emphasize
here. First, the geography of economic globalization is strategic rather
than all-encompassing, and this is especially so when it comes to the
managing, coordinating, servicing, and financing of global economic op-
erations. The fact that it is strategic is significant for a discussion about
the possibilities of regulating and governing the global economy. Second,
the center of gravity of many of the transactions that we refer to in an
aggregate fashion as the global economy lies in the North Atlantic re-
gion, a fact which also facilitates the development and implementation of
convergent regulatory frameworks and technical standards, and enables
a convergence around “Western” standards. If the geography of global-
ization were a diffuse condition at the planetary scale, and one involving
equally powerful countries and regions with a much broader range of
differences than those evident in the North Atlantic, the question of its
regulation might well be radically different. Third, the strategic geogra-
phy of globalization is partly embedded in national territories, i.e., global
cities and Silicon Valleys. The combination of these three characteristics
suggests that states may have more options to participate in governing the
global economy than much of the focus on the loss of regulatory authority
allows us to recognize.
There are sites in this strategic geography where the density of eco-
nomic transactions and the intensity of regulatory efforts come together
in complex, often novel configurations. Two of these are the focus of
this section. They are foreign direct investment, which mostly consists
of crossborder mergers and acquisitions, and the global capital market,
undoubtedly the dominant force in the global economy today. Along with
trade, they are at the heart of the structural changes constitutive of glob-
alization and the efforts to regulate it. These two processes also make
evident the enormous weight of the North Atlantic region in the global
economy.
Both foreign direct investment and the global capital market bring up
specific organizational and regulatory issues.21 There is an enormous
increase in the complexity of management, coordination, servicing, and
financing for firms operating worldwide networks of factories, service out-
lets, and/or offices, and for firms operating in crossborder financial mar-
kets. For reasons I discuss later, this has brought about a sharp growth in
control and command functions, and their concentration in a crossborder
network of major financial and business centers. This in turn contributes
to the formation of a strategic geography for the management of global-
ization. Nowhere is this as evident as in the structure of the global capital
market and the network of financial centers within which it is located.
Elsewhere I examine this institutional order as the site of a new type of
private authority.22
Each of these also is at the heart of a variety of regulatory initiatives.
The growth of foreign direct investment has brought with it a renewed
concern with questions of extraterritoriality and competition policy, in-
cluding the regulation of crossborder mergers. The growth of the global
capital market has brought with it specific efforts to develop the elements
of an architecture for its governance: international securities regulation,
new international standards for accounting and financial reporting, vari-
ous European Union provisions. Each has tended to be ensconced in fairly
distinct regulatory frameworks: foreign direct investment in antitrust law,
and global finance in national regulatory frameworks for banking and
finance.23
Further, while this strategic geography of globalization is partly embed-
ded in national territories, this does not necessarily entail that existing
national regulatory frameworks can regulate those functions. Regulatory
functions have shifted increasingly toward a set of emerging or newly
invigorated crossborder regulatory networks and the development of a
whole array of standards to organize world trade and global finance. Spe-
cialized, often semi-autonomous regulatory agencies, and the specialized
crossborder networks they are forming, are taking over functions once
enclosed in national legal frameworks, and standards are replacing rules
in international law. The question for research and theory is whether this
mode of regulation is sufficient, and whether state participation may not
98 Saskia Sassen
emerge again as a more significant factor for the ultimate workability of

some of these new regulatory regimes.
Finally, the empirical patterns of foreign direct investment and global
finance show to what extent their centers of gravity lie in the North
Atlantic region. The northern trans-Atlantic economic system (specifi-
cally the links among the European Union, the United States, and Canada)
represents the major concentration of processes of economic globalization
in the world today. This holds whether one looks at foreign direct invest-
ment flows generally, at crossborder mergers and acquisitions in partic-
ular, at overall financial flows, or at the new strategic alliances among
financial centers. At the turn of the millennium this region accounts for
two-thirds of worldwide stock market capitalization, 60 percent of inward
foreign investment stock and 76 percent of outward stock, 60 percent of
worldwide sales in mergers and acquisitions, and 80 percent of purchases
in M&As. There are other major regions in the global economy: Japan,
South East Asia, Latin America. But except for some of the absolute
levels of capital resources in Japan, they are dwarfed by the size of the
northern trans-Atlantic system.
This heavy concentration in the volume and value of crossborder trans-
actions raises a number of questions. One concerns its features, the extent
to which there are interdependence and (in that sense) the elements of
a crossborder economic system. The weight of these trans-Atlantic links
needs to be considered against the weight of established zones of influ-
ence for each of the major powers – particularly, the rest of the western
hemisphere in the case of the United States, and Africa and Central and
Eastern Europe for the European Union.
If there is considerable interdependence in the northern trans-Atlantic
system, then the question of regulation and governance is likely to be of
a different sort than if globalization for each of these major regions has
meant in practice strengthening their ties and presence in their respec-
tive zones of influence. The United States and individual EU members
have long had often intense economic transactions with their zones of
influence. Some of these have been reinvigorated in the new economic
policy context of opening to foreign investment, privatization, and trade
and financial deregulation.
In my reading of the evidence, both the relations of the North Atlantic
powers with their respective zones of influence and the relations within
the system have changed. We are seeing the consolidation of a transna-
tional economy that has its center of gravity in the North Atlantic system
both in terms of the intensity and value of transactions, and in terms
of the emerging system of rules and standards. This system is articu-
lated with a growing network of sites for investment, trade, and financial
transactions in the rest of the world. It is through this incorporation in a

hierarchical global network, which has its center in the North Atlantic,
that the relations with their zones of influence is now constituted. Thus,
while the United States is still a dominant force in Latin America, sev-
eral European countries have become major investors there, on a scale
far surpassing past trends. And while several European Union countries
have become leaders in investment in Central and Eastern Europe, US
firms are playing a role they have never before played.
What we are seeing today is a new grid of economic transactions super-
imposed on the old geoeconomic patterns. The latter persist to variable
extents, but they are increasingly submerged under this new crossborder
grid which amounts to a new, though partial geoeconomics. In my own
research I have found that these new configurations are particularly evi-
dent in the organization of global finance and, to a lesser extent, in direct
foreign investment, especially crossborder mergers and acquisitions.
The fact of systemic conditions in the new geoeconomics is significant
for the question of regulation. The orders of magnitude and the intensity
of transactions in the North Atlantic system facilitate the formation of
standards even in the context of what are, relatively speaking, strong
differences between the United States and continental Europe in their
legal, accounting, antitrust, and other rules. It is clear that even though
these two regions have more in common with each other than with much
of the rest of the world, their differences matter when it comes to the
creation of crossborder standards. The fact of shared Western standards
and norms, however, in combination with enormous economic weight has
facilitated the circulation and imposition of US and European standards
and rules on transactions involving firms from other parts of the world.
There is a sort of globalization of Western standards. Much has been said
about the dominance of US standards and rules, but European standards
are also evident, for instance in the new antitrust rules being developed
in Central and Eastern Europe.
Worldwide networks and central command functions

There are, clearly, strong dispersal trends contained in the patterns of for-
eign investment and capital flows generally: the offshoring of factories, the
expansion of global networks of affiliates and subsidiaries, the formation
of global financial markets with a growing number of participating coun-
tries. What is excluded from this account is the other half of the story.
This worldwide geographic dispersal of factories and service outlets takes
place as part of highly integrated corporate structures with strong ten-
dencies toward concentration in control and profit appropriation. The
100 Saskia Sassen
North Atlantic system is the site for most of the strategic management
and coordination functions of the new global economic system.
Elsewhere I have shown that, when the geographic dispersal of fac-
tories, offices, and service outlets through crossborder investment takes
place as part of such integrated corporate systems, there is also a growth
in central functions; we can see a parallel trend with financial firms and
markets.24 One hypothesis this suggests is that the more globalized firms
become, the more their central functions grow – in importance, in com-
plexity, in number of transactions.25 The specific forms assumed by glob-
alization over the last decade have created particular organizational re-
quirements. The emergence of global markets for finance and specialized
services, the growth of investment as a major type of international trans-
action – all have contributed to the expansion in command functions and
in the demand for specialized services for firms.26
We can make this more concrete by considering some of the staggering
figures involved in this worldwide dispersal, and imagining what it entails
in terms of coordination and management for parent headquarters, such
as the fact that by the late 1990s there were almost half a million foreign
affiliates of firms worldwide, most of them belonging to firms from North
America and Western Europe.27 There has been a greater growth in for-
eign sales through affiliates than through direct exports: the foreign sales
through affiliates were US$ 11 trillion in 1999 and through worldwide
exports of goods and services US$ 8 trillion. This has of course also fed
the intrafirm share of so-called free crossborder trade. The data on for-
eign direct investment show clearly that the United States and the EU are
the major receiving and sending areas in the world. Finally, the transna-
tionality index of the largest transnational firms shows that many of the
major firms from these two regions have over half of their assets, sales,
and workforces outside their home countries.28 Together these types of
evidence provide a fairly comprehensive picture of this combination of
dispersal and the growth of central functions.
The globalization of a firm’s operations brings with it a massive task of
coordination and management. Much of this has been going on for a long
time but has accelerated over the decades. Further, this dispersal does not
proceed under a single organizational form – rather, behind these general
figures lie many different organizational forms, hierarchies of control,
degrees of autonomy. The globally integrated network of financial centers
is yet another form of this combination of dispersal and the growing
complexity of central management and coordination.
Of importance to the analysis here is the dynamic that connects the
dispersal of economic activities with the growth of central functions. In
terms of sovereignty and globalization, this means that an interpretation

of the impact of globalization as creating a space economy that extends
beyond the regulatory capacity of a single state is only half the story; the
other half is that these central functions are disproprotionately concen-
trated in the national territories of the highly developed countries.
By central functions I do not only mean top-level headquarters; I am
referring to all the top-level financial, legal, accounting, managerial, ex-
ecutive, and planning functions necessary to run a corporate organization
operating in more than one country, and increasingly in several countries.
These central functions are partly embedded in headquarters, but also
in good part in what has been called the corporate services complex, that
is, the network of financial, legal, accounting, and advertising firms that
handle the complexities of operating in more than one national legal sys-
tem, national accounting system, advertising culture, etc., and do so un-
der conditions of rapid innovations in all these fields. Such services have
become so specialized and complex that headquarters increasingly buy
them from specialized firms rather than producing them in-house. These
agglomerations of firms producing central functions for the management
and coordination of global economic systems are disproportionately con-
centrated in the highly developed countries – particularly, though not
exclusively, in the kinds of cities I call global cities. Such concentrations
of functions represent a strategic factor in the organization of the global
economy.
One argument I am making here is that it is important to unbundle ana-
lytically the fact of strategic functions for the global economy or for global
operation, and the overall corporate economy of a country. These global
control and command functions are partly embedded in national cor-
porate structures but also constitute a distinct corporate subsector. This
subsector can be conceived of as part of a network that connects global
cities across the globe.29 For the purposes of certain kinds of inquiry this
distinction may not matter; for the purposes of understanding the global
economy, it does. And it seems to me that this distinction also matters
for questions of regulation, notably regulation of crossborder activities.
If the strategic central functions – both those produced in corporate
headquarters and those produced in the specialized corporate services
sector – are located in a network of major financial and business cen-
ters, the question of regulating what amounts to a key part of the global
economy is not the same as if the strategic management and coordination
functions were as distributed geographically as are the factories, service
outlets, and affiliates. However, regulation of these activities is evolving
along lines of greater specialization and crossborder capabilities than most
102 Saskia Sassen
current state-centric national systems can comfortably accommodate

today.
Another instance today of this negotiation between a transnational pro-
cess or dynamic and a national territory is that of the global financial
markets. The orders of magnitude have risen sharply, as illustrated by the
US$ 68 trillion in the 1999 value of internationally traded derivatives, a
major component of the global economy. These transactions are partly
embedded in telecommunications systems that make possible the in-
stantaneous transmission of money/information around the globe. Much
attention has gone to these capacities for instantaneous transmission. But
the other half of the story is the extent to which the global financial mar-
kets are located in particular cities, especially though not exclusively in
the highly developed countries; indeed, the degrees of concentration are
unexpectedly high.
Stock markets worldwide have become globally integrated. In addition
to deregulation in the 1980s in all the major European and North Ameri-
can markets, the late 1980s and early 1990s saw the addition of such mar-
kets as Buenos Aires, Sao Paulo, Bangkok, Taipei, etc. The integration
of a growing number of stock markets has contributed to raise the capital
that can be mobilized through stock markets. Worldwide market value
reached over US$ 30 trillion in 2000. This globally integrated stock mar-
ket, which makes possible the circulation of publicly listed shares around
the globe in seconds, is embedded in a grid of very material, physical,
strategic places – that is, cities belonging to national territories.
A crucial issue for understanding the question of regulation and the
role of the state in the global capital market is the ongoing embeddedness
of this market in these networks of financial centers operating within na-
tional states; these are not offshore markets. The North Atlantic system
contains an enormous share of the global capital market through its sharp
concentration of leading financial centers.30 Further, as the system ex-
pands through the incorporation of additional centers into this network –
from Eastern Europe, Latin America, etc. – the question of regulation
also pivots on the existence of dominant standards and rules, i.e. those
produced by the economies of the North Atlantic.
In my reading, studies that emphasize deregulation and liberalization
do not sufficiently recognize an important feature, one which matters for
the analysis here: the global financial system has reached levels of com-
plexity that require the existence of a crossborder network of financial
centers to service the operations of global capital. Each actual finan-
cial center represents a massive and highly specialized concentration of
resources and talent; and the network of these centers constitutes the
operational architecture for the global capital market.
Denationalized state agendas

The representation of economic globalization coming out of the two pre-
ceding sections is quite different from many of the standard accounts.
For the purposes of this section it is especially two of the features of glob-
alization as discussed above that matter. One of these is that the global
economy needs to be produced, reproduced, serviced, financed. It can-
not be taken simply as a given, such as the fact of more interdependence,
or merely as a function of the power of multinational corporations and
financial markets. There is a vast array of highly specialized functions that
need to be ensured. These have become so specialized that they can no
longer be contained in corporate headquarters functions. Global cities
are strategic sites for the production of these specialized functions to run
and coordinate the global economy. Inevitably located in national territo-
ries, these cities are the organizational and institutional location for some
of the major dynamics of denationalization. While such processes of de-
nationalization – for instance, certain aspects of financial and investment
deregulation – are institutional and not geographic, the geographic loca-
tion of many of the strategic institutions – financial markets and financial
services firms – means these processes are embedded geographically.
The second feature, partly connected to the first, is that the global
economy to a large extent materializes in national territories. Its topogra-
phy is one that moves between digital space and national territories. This
requires a particular set of negotiations which have the effect of leaving
the geographic boundaries of the national state’s territory unaltered, but
do transform the institutional encasements of that geographic fact, that
is, the state’s territorial jurisdiction or, more abstractly, exclusive territo-
riality.
Precisely because global processes need to be coordinated and serviced
and because many of these functions materialize to a large extent in na-
tional territories, national states have had to become deeply involved in
the implementation of the global economic system. In this process states
have experienced transformations of various aspects of their institutional
structure. This signals that the global economy and the national state are
not mutually exclusive domains. Globalization leaves national territory
basically unaltered but is having pronounced effects on the exclusive ter-
ritoriality of the national state – that is, its effects are not on territory
as such but on the institutional encasements of the geographic fact of
national territory. But alongside and, in my reading, distinct from this
diminished territorial authority of the state, there is the denationalizing
of specific state agendas. The work of states in producing part of the
technical and legal infrastructure for economic globalization has involved
104 Saskia Sassen
both a change in the exclusivity of state authority and in the composition

of the work of states. Economic globalization entails a set of practices that
destabilize another set of practices, i.e., some of the practices that came
to constitute national state sovereignty.
Implementing today’s global economic system in the context of na-
tional territorial sovereignty required multiple policy, analytic, and nar-
rative negotiations. These negotiations have typically been summarized
or coded as “deregulation.” There is much more going on in these ne-
gotiations than the concept “deregulation” captures. The encounter of a
global actor – firm or market – with one or another instantiation of the na-
tional state can be thought of as a new frontier. It is not merely a dividing
line between the national economy and the global economy. It is a zone
of politico-economic interactions that produce new institutional forms
and alter some of the old ones. Nor is it just a matter of reducing reg-
ulations. For instance, in many countries, the necessity for autonomous
central banks in the current global economic system has required a thick-
ening of regulations in order to delink central banks from the influence of
the executive branch of government and from deeply “national” political
agendas.
Central banks illustrate this well. These are national institutions, con-
cerned with national matters. Yet over the last decade they have become
the institutional home within the national state for monetary policies that
are necessary to further the development of a global capital market and
indeed, more generally, a global economic system. The new condition-
ality of the global economic system – the requirements that need to be
met for a country to become integrated into the global capital market –
contains as one key element the autonomy of central banks.31 This fa-
cilitates the task of instituting a certain kind of monetary policy, e.g.,
one privileging low inflation over job growth even when a president may
have preferred it the other way around, particularly at reelection time.
While securing central bank autonomy has certainly eliminated a lot of
corruption, it has also been the vehicle for one set of accommodations on
the part of national states to the requirements of the global capital mar-
ket. A parallel analysis can be made of ministries of finance (known as
the Treasury in the United States and the UK) which have had to im-
pose certain kinds of fiscal policies as part of the new conditionalities of
economic globalization.
There is a set of strategic dynamics and institutional transformations
at work here. They may incorporate a small number of state agencies and
units within departments, a small number of legislative initiatives and of
executive orders, and yet have the power to institute a new normativity at
the heart of the state; this is especially so because these strategic sectors are
operating in complex interactions with private, transnational, powerful

actors. Much of the institutional apparatus of the state remains basically
unchanged; the inertia of bureaucratic organizations, which creates its
own version of path dependence, makes an enormous contribution to
continuity.
In my current research on the United States, I am extricating from
what has been constructed as “US legislative history” a whole series of
legislative items and executive orders that can be read as accommoda-
tions on the part of the national state and as its active participation in
producing the conditions for economic globalization. This is a history
of microinterventions, often minute transformations in the regulatory or
legal frameworks that facilitated the extension of particular crossborder
operations of US firms. This is clearly not a new history, neither for
the United States nor for other Western former imperial powers (e.g.,
the “concessions” to trading companies under British, Dutch, and other
colonial regimes). Yet, I argue, we can identify a new phase, one which
has very specific instantiations of this broader feature.32
Among the first of these new measures in the United States, and per-
haps among the best-known, are the tariff items passed to facilitate the
internationalization of manufacturing, which exempted firms from im-
port duties on the value added of reimported components assembled or
manufactured in offshore plants. I date this microhistory of legislative
and executive interventions to the late 1960s, with a full crystallization
of various measures facilitating the global operations of US firms and the
globalization of markets in the 1980s, and work continuing vigorously in
the 1990s. The Foreign Investment Act of 1976, the implementation of
International Banking Facilities in 1981, the various deregulations and
liberalizations of the financial sector in the 1980s, and so on – these are
but the best-known landmarks in this microhistory.
Further, the new types of crossborder collaborations among specialized
government agencies concerned with a growing range of issues emerging
from the globalization of capital markets and the new trade order are yet
another aspect of this participation by the state in the implementation of
a global economic system. A good example is the heightened interaction
in the past three or four years among competition policy regulators from
a large number of countries. This is a period of renewed concern about
competition policy because economic globalization puts pressure on gov-
ernments to work toward convergence given the crosscountry diversity of
competition laws or enforcement practices. This convergence around spe-
cific competition policy issues can coexist with ongoing, often enormous
differences among these countries when it comes to laws and regulations
about those components of their economies that do not intersect with
106 Saskia Sassen
globalization. There are multiple other instances of this highly specialized

type of convergence: regulatory issues concerning telecommunications,
finance, the Internet, etc. It is, then, a very partial type of convergence
among regulators of different countries who often begin to share more
with each other than they do with colleagues in their home bureaucracies.
What is of particular concern here is that today we see a sharp increase
in the work of establishing convergence.33 We can clearly identify a new
phase in the past ten years. In some of these sectors there has long been
an often elementary convergence, or at least coordination, of standards.
For instance, central bankers have long interacted with each other across
borders, but today we see an intensification in these transactions, which
becomes necessary in the effort to develop and extend a global capital
market. The increase of crossborder trade has brought with it a sharpened
need for convergence in standards, as is evident in the vast proliferation of
International Organization for Standardization (ISO) items. Another ex-
ample is the institutional and legal framework necessary for the operation
of the crossborder commodity chains identified by Gereffi.34
One outcome of these various trends is the emergence of a strate-
gic field of operations that represents a partial disembedding of specific
state operations from the broader institutional world of the state that had
been geared exclusively to national agendas. It is a field of crossborder
transactions among government agencies and business sectors aimed at
addressing the new conditions produced and demanded by economic
globalization. In positing this I am rejecting the prevalent notion in much
of the literature on globalization that the realm of the national and the
realm of the global are two mutually exclusive zones. My argument is
rather that globalization is partly endogenous to the national, and is in
this regard produced through a dynamic of denationalizing what had been
constructed as the national.35
It is also a field of particular types of transactions: they are strategic,
cut across borders, and entail specific interactions with private actors.
These transactions do not entail the state as such, as in international
treaties, but rather consist of the operations and policies of specific sub-
components of the state – for instance, legislative initiatives, specialized
technical regulatory agencies, or some of the agendas pursued by central
banks. These are transactions that cut across borders in that they concern
the standards and regulations imposed on firms and markets operating
globally,36 and hence produce a certain convergence at the level of na-
tional regulations and law in the creation of the requisite conditions for
globalization. The result is a mix of new or strengthened forms of private
authority and partly denationalized state authority, such as the instituting
of private interests into state normativity.37
Conclusion
The chapters in this volume show us the repositioning of the state in a
broader field of power partly constituted through the formation of a new
private institutional order linked to the global economy, but also through
the growing importance of a variety of other institutional orders, from
the new roles of the international network of NGOs to the international
human rights regime. In this chapter the focus is not on that private insti-
tutional order but rather on the ways in which the state participates in the
implementation of a global economic system. The focus is particularly
on modes of participation that have the effect of transforming certain fea-
tures of the state, including ways that are often not evident. The aim was
to map an intermediate zone where private authority and state authority
meet and produce a third type of authority. This is an intermediate in-
stitutional zone in need of conceptualization and empirical specification.
This chapter begins to map some of its features.
Economic globalization has emerged as a key dynamic in the forma-
tion of a transnational system of power which lies in good part outside
the formal interstate system. One instance of this is the relocation of na-
tional public governance functions to transnational private arenas, much
of the focus in this volume. But I argue that it also lies, to a far higher
degree than is usually recognized, inside particular components of na-
tional states. This second feature can be recognized in the work done by
legislatures, courts, and various agencies in the executive to produce the
mechanisms necessary to accommodate the rights of global capital in what
are still national territories under the exclusive control of their states.
Rather than interpreting this as signaling that not much has changed,
or as a capturing of the state by private interests, I interpret this as a
denationalizing of what had been constructed in national terms.
The much examined decrease in state regulatory capacities resulting
from some of the basic policies associated with economic globalization
is a far more differentiated process than notions of an overall decline in
the significance of the state suggest. And it entails a more transformative
dynamic inside the state than the notion of a simple loss of power suggests.
There are significant policy implications to this type of reading. Up to now
much of the work of the state has concerned the claims made by powerful
economic actors. I would like to posit the possibility of new types of state
authority, including the possibility of forms going well beyond the current
modes of state action. In principle, such new modes could also involve
elements of a new politics of accountability vis-à-vis global actors rather
than the current orientation of state work toward furthering the rights
and guarantees of global capital. The enabling condition is, precisely, the
108 Saskia Sassen
institutional and locational embeddedness of the global economy, at least

partly, in national institutional orders and territories.

1 This chapter is part of my larger multiyear research project to be published as
Denationalization: Economy and Polity in a Global Digital Age (under contract
with Princeton University Press, September 2003).
2 Saskia Sassen, The Global City: New York, London, Tokyo (Princeton, N.J.:
Princeton University Press, 2001, 2nd edn. [1991]).
3 Sassen, Denationalization.
4 Steven D. Krasner, Sovereignty: Organized Hypocrisy (Princeton, N.J.: Prince-
ton University Press, 1999).
5 Leo Panitch, “Rethinking the Role of the State in an Era of Globalization,” in
James Mittelman (ed.), Globalization: Critical Reflections. International
Political Economy Yearbook, vol. 9 (Boulder, Colo.: Lynne Rienner, 1996),
pp. 83–113; Stephen Gill, “Globalization, Democratization, and the Politics
of Indifference,” in the same volume, pp. 205–28; and Mittelman, The Glob-
alization Syndrome: Transformation and Resistance (Princeton, N.J.: Princeton
University Press, 2000).
6 Two very different bodies of scholarship which develop lines of analysis that
can help in capturing some of these conditions are represented by the work
of Rosenau, particularly his examination of the domestic “frontier” inside
the national state, and by the work of Walker problematizing the distinc-
tion inside/outside in international relations theory. See James N. Rosenau,
Along the Domestic–Foreign Frontier: Exploring Governance in a Turbulent World
(Cambridge: Cambridge University Press, 1997), and R. B. J. Walker, In-
side/Outside: International Relations as Political Theory (Cambridge: Cambridge
7 Saskia Sassen, Losing Control? Sovereignty in an Age of Globalization, 1995
Columbia University Leonard Hastings Schoff Memorial Lectures (New York:
Columbia University Press, 1996), chs. 1 and 2.
8 Sol Picciotto, International Business Taxation: A Study in the Internationaliza-
tion of Business Regulation (London: Weidenfeld and Nicolson, 1992); P. G.
Cerny, The Changing Architecture of Politics (London: Sage, 1990); and Pan-
itch, “Rethinking the Role of the State.”
9 I use this term to distinguish this production from “law” or “jurisprudence”:
Sassen, Losing Control?, ch. 1.
10 While well known, it is worth remembering that this guarantee of the rights
of capital is embedded in a certain type of state, a certain conception of the
rights of capital, and a certain type of international legal regime: it is largely
embedded in the state of the most developed and most powerful countries
in the world, in Western notions of contract and property rights, and in new
legal regimes aimed at furthering economic globalization, e.g., the push to get
countries to support copyright law.
11 Gill, “Globalization, Democratization,” and Panitch, “Rethinking the Role of
the State.”
12 Sassen, Losing Control?, chs. 1 and 2, and Sassen, Denationalization.

13 See Williams, “Transnational Organized Crime and the State,” this volume.
14 Yves Dezalay and Bryant Garth, Dealing in Virtue: International Commercial
Arbitration and the Construction of a Transnational Legal Order (Chicago and
London: University of Chicago Press, 1996).
15 See also Cutler, “Private Regimes and Interfirm Cooperation,” this volume.
16 This dominance assumes many forms and does not affect only poorer and
weaker countries. France, for instance, ranks among the top providers of in-
formation services and industrial engineering services in Europe, and has a
strong, though not outstanding, position in financial and insurance services.
But it has found itself at an increasing disadvantage in legal and accounting
services because Anglo-American law and standards dominate in international
transactions. Anglo-American firms with offices in Paris do the servicing of
the legal needs of firms, whether French or foreign, operating out of France
(Sassen, Global City). Similarly, Anglo-American law is increasingly dominant
in international commercial arbitration, an institution grounded in continen-
tal, particularly French and Swiss, traditions of jurisprudence (Dezalay and
Garth, Dealing in Virtue).
17 See, in this regard, Giovanni Arrighi, The Long Twentieth Century: Money,
Power, and the Origins of Our Times (London: Verso, 1994); Diana E. Davis
(ed.), “Chaos and Governance,” Political Power and Social Theory, 13, Part IV:
Scholarly Controversy (Stamford, Conn.: JAI Press, 1999).
18 Elsewhere (Denationalization) I examine how these dynamics also position cit-
izens (still largely confined to national state institutions for the full execution of
their rights) vis-à-vis these types of global struggles. My argument is that state
participation creates an enabling environment not only for global corporate
capital but also for those seeking to subject the latter to greater accountability
and public scrutiny. But unlike what has happened with global corporate cap-
ital, the necessary legal and administrative instruments and regimes have not
been developed. The tradeoffs and the resources that can be mobilized are
quite different in the case of citizens seeking to globalize their capacities for
governing compared to those of global capital seeking to form regimes that
enable and protect it.
19 Alfred C. Aman, Jr., “The Globalizing State: A Future-Oriented Perspective
on the Public/Private Distinction, Federalism, and Democracy,” Vanderbilt
Journal of Transnational Law, 31 (4) (1998), 769–870.
20 I examine these two issues in greater detail in Sassen, Denationalization.
21 For a detailed examination of these two aspects, see Sassen, Global City,
chs. 4, 5, and 7.
22 Sassen, Losing Control?, ch. 2.
23 It is quite possible that globalization may have the effect of blurring the bound-
aries between these two regulatory worlds.
24 Sassen, Global City.
25 This process of corporate integration should not be confused with vertical
integration as conventionally defined. See also Gary Gereffi, “Global Pro-
duction Systems and Third World Development,” in Barbara Stallings (ed.),
Global Change, Regional Response: The New International Context of Development
110 Saskia Sassen
(New York: Cambridge University Press, 1995), pp. 100–42, on commodity

chains, and Michael Porter, The Competitive Advantage of States (New York:
Free Press, 1990), on value-added chains, two constructs that also illustrate
the difference between corporate integration at a world scale and vertical in-
tegration as conventionally defined.
26 A central proposition here, developed at length in my work (Global City), is
that we cannot take the existence of a global economic system as a given,
but rather need to examine the particular ways in which the conditions for
economic globalization are produced. This requires examining not only com-
munication capacities and the power of multinationals, but also the infras-
tructure of facilities and work processes necessary for the implementation of
global economic systems, including the production of those inputs that con-
stitute the capability for global control and the infrastructure of jobs involved
in this production. The emphasis shifts to the practice of global control: the
work of producing and reproducing the organization and management of a
global production system and a global marketplace for finance, both under
conditions of economic concentration. The recovery of place and production
also implies that global processes can be studied in great empirical detail.
27 Affilliates are but one form of operating overseas and hence their number un-
derrepresents the dispersal of a firm’s operations. There are today multiple
forms, ranging from new temporary partnerships to older types of subcon-
tracting and contracting.
28 This index is an average based on ratios of the share that foreign sales, assets,
and employment represent in a firm’s total of each. If we consider the world’s
top 100 transnational corporations (TNCs) in 1997, the EU had 48 of these
firms and the United States 28; many of the remaining were from Japan.
Thus together the EU and the United States accounted for over two-thirds of
the world’s 100 largest TNCs. The United States, the UK, France, Germany,
and Japan together accounted for 3/4 of these 100 firms in 1997; this has
been roughly so since 1990. The average transnationality index for the EU is
56.7 percent compared to 38.5 percent for the United States (but 79.2 for
Canada). Most of the US and EU TNCs in this top 100 list have very high
levels of foreign assets as a percentage of total assets: for instance, 98 percent
for Seagram, 97 percent for Thomson, 96 percent for Asea Brown Boveri,
91 percent for Bayer, 91 percent for Nestlé, 85 percent for Michelin, 85 per-
cent for Unilever, 79 percent for Hoechst, 77 percent for Philips Electronics,
71 percent for Ericsson, 69 percent for Ferruzi/Montedison, 68 percent for
Coca-Cola, 67 percent for Rhône-Poulenc, 62 percent for Elf Aquitaine, 59
percent for BMW, 58 percent for Exxon, 55 percent for McDonald’s, 55 per-
cent for Volkswagen Group, 51 percent for IBM, 45 percent for Renault, 43
percent for Siemens, and so on. The share of foreign in total employment is
often even higher. (See Organization for Economic Cooperation and Develop-
ment, Transborder Data Flow Contracts in the Wider Framework Mechanisms for
Privacy Protection in Global Networks [Paris: OECD, 2000], for the full listing.)
29 In this sense, global cities are different from the old capitals of erstwhile em-
pires, in that they are a function of crossborder networks rather than simply
the most powerful city of an empire. There is, in my conceptualization, no
such entity as a single global city as there could be a single capital of an em-
pire; the category global city makes sense only as a component of a global
network of strategic sites. The corporate subsector which contains the global
control and command functions is partly both embedded in, and constitutive
of this network.
30 Two major developments that can alter some of the features of the present
configuration are the growth of electronic trading and the growth of the
eurozone. The creation of an enormous consolidated capital market in the
eurozone raises serious questions about the feasibility of maintaining the cur-
rent pattern with as many international financial centers as there are member
countries; some of these markets may lose top international functions and
get repositioned in complex and hierarchical divisions of labor. Second, elec-
tronic trading is leading to a distinct shift toward setting up strategic alliances
among major financial centers, producing a combination of a crossborder dig-
ital market embedded in a set of specific city-based financial markets. I have
examined this at greater length in Sassen, Global City, chs. 4, 5, and 7.
31 While we take this autonomy for granted in the United States or in most EU
countries (though not all – thus France’s central bank is still not considered as
quite autonomous from the executive), in many countries the head of state or
local oligarchies have long had undue influence on central banks. Incidentally,
this influence has not necessarily always worked to the disadvantage of the
disadvantaged, as is evident for instance in monetary policies that promoted
employment by letting inflation rise.
32 I am trying to distinguish current forms from older notions of the state as
a tool of capital, comprador bourgeoisies, or neocolonialism. Further, there
are important parallels in this research with scholarship focused on the work
of the state in producing the distinction between private and public law (see
Cutler, “Private Regimes and Interfirm Cooperation,” in this volume), and
with scholarship on the work of the state in setting up the various legal and
administrative frameworks that gave the modern state its shape.
33 I use the term convergence for expediency. In the larger project I posit that
conceptualizing these outcomes as convergence is actually problematic and
often incorrect. Rather than a dynamic whereby individual states wind up
converging, what is at work is a global dynamic that gets filtered through the
specifics of each “participating” state. Hence my central research concern is
not so much the outcome, “convergence,” but the work of producing this
outcome.
34 Gereffi, “Global Production Systems.”
35 Further, insofar as it is partly embedded in national settings, e.g., global cities,
the state has had to re-regulate specific aspects of its authority over national
territory.
36 An important point, which is usually disregarded in much general commentary
about the global economy, is that a firm can participate in the latter even if it
operates inside a single country: the key is whether it participates in a market
or a transaction that is part of the global “system.” My concern in this regard
has been to show that there is considerable institutional development of that
which is called the global economy – it is not simply a matter of goods or money
112 Saskia Sassen
crossing borders. For a firm’s operations to be part of the global economy, they
need to be encased in this institutional framework. If they are not, they may
constitute an informal crossborder transaction or part of the new transnational
criminal economy. A simplified illustration of the point that the distinctiveness
of participating in the global economy does not necessarily lie in the fact of
crossing borders is, for example, a US-based firm (whether US or non-US)
that invests in a non-US firm listed on the New York stock market. The point
here is that there is a regime – a set of conditions and legalities – that governs
the listing of foreign firms on a stock market that has been incorporated in the
global system and that governs the conditions under which the investor can
acquire stock in that firm. I see the key, determining issue to be whether the
firms and investors involved are operating under the umbrella of this regime.
This umbrella is partly constituted through national institutions and partly,
perhaps increasingly so, through the new privatized institutional framework I
discuss later. What comes together in this example in my reading are some of
the specifications I summarize in the global city model and in the notion of
denationalization. On the other hand, the following would not be an instance
of firms operating in the global economic system, even though it entails actual
physical crossing of borders: two individuals residing in different countries
making a deal informally for one of them to bring items, also informally –
without following regulations, including WTO regulations – for the second
individual to sell in the second country, with both individuals using informal
accounting and trust systems to guarantee enforcement of the conditions of
the agreement. This is an extreme contrast; there are many cases that are more
ambiguous than this.
37 As I indicated earlier, I conceptualize denationalization as multivalent. Thus,
in the case of human rights, matters which had been considered the prerogra-
tive of states – security and protection of its citizens – are universalized and in
that sense denationalized (see Sassen, Denationalization).
Part III
Moral authority: global civil society and

transnational religious movements
6 “Regulation for the rest of us?” Global civil
society and the privatization of
transnational regulation
Ronnie D. Lipschutz and Cathleen Fogel
Introduction
The protests that took place in Seattle during the November 1999 meet-
ing of the World Trade Organization (WTO), and which have occurred
periodically since then, illustrate a growing public demand for greater
transparency, representation, and regulation under conditions of global-
ization.1 While much rhetoric was expended condemning the WTO for
its intrusions on national sovereignty, the alternatives proposed by the
groups marching in the streets were less clear. Inasmuch as a return to
the prosperity and political conditions of the 1960s is not on the cards,
and a return to the anarchic and “beggar-thy-neighbor” circumstances of
the 1930s is manifestly undesirable, what constitutes a politically viable
response to the negative impacts of globalization? Or, to put the question
another way, how can “regulation for the rest of us” be achieved?
We argue here that, in the interests of economic competitiveness and
growth, nation-states have yielded a substantial amount of their domestic
regulatory authority to transnational regimes and organizations, such as
the WTO, the International Monetary Fund, and various other interna-
tional regimes and institutions.2 While globalization is much discussed
in terms of the mobility of capital and production, and much feared
and opposed for its disruptive impacts on labor and social organization
more generally, the question of regulation, per se, has not been much
considered.3 Nonetheless, a critical set of problems arising from contem-
porary globalization are the social, economic and environmental external-
ities that are not being addressed within the existing international system
of regulatory conventions and regimes.4 As seen in developing country re-
sponses to President Bill Clinton’s speech at the Seattle WTO ministerial
meeting, suggestions that such regulation might be in order and proposals
to extend regulation to include transnational social, environmental, and
similar problems are strongly opposed by governmental authorities and
corporate officials. They seem generally to find international law to be
115
116 Ronnie D. Lipschutz and Cathleen Fogel
acceptable if it involves trade or monetary matters, but inappropriate if it

addresses “non-economic” issues.5 This issue of regulation at the global
level is not, however, one that will disappear even with economic growth,
and it is only likely to become more pressing in the future as a result of
the further global expansion of capitalism.6
For much of the post-World War II period, such international regula-
tion as there was emerged from intergovernmental negotiations, which
led to the signing and ratification of agreements and treaties by individ-
ual states and the creation of “international regimes.”7 There were few, if
any, other channels available for the development of formal international
laws and rules. While non-state social actors were permitted access to and
influence within a number of intergovernmental institutions such as the
UN Economic and Social Commission (ECOSOC), for the most part
there were serious restrictions in terms of what they could say or do in
these forums. In recent years, such restrictions have lessened, albeit only
in selected settings, such as the yearly meetings of the parties to the UN
Framework Convention on Climate Change. Even there, opportunities
for direct participation in debates and decisions remain limited.
At the same time, regulatory patterns have become much more com-
plicated and diffuse. As Steven Vogel has noted, there has been some
decrease in certain forms of national regulation, but these have been re-
placed, in many cases, by international rules.8 For example, in the finan-
cial sector, international regulation of various types of economic practices
and transactions has been put in place in order to ensure the overall sta-
bility of the global economy.9 In a number of instances, the rulings of
the World Trade Organization have trumped national law, and the dis-
pute resolution system of the Trade-Related Intellectual Property Rights
(TRIPS) convention of the WTO, in particular, appears to have real teeth.
But these regulatory trends are limited in scope, and there is no global
welfare state to play a role corresponding to that of national governments
in ensuring some degree of fairness, representation, and transparency in
how laws and rules are promulgated.10 The notion that ratification by
national legislatures suffices for public involvement in global regulatory
policy remains more or less the standard line.
The past fifteen years or so have, nonetheless, begun to see a chal-
lenge to this state of affairs. While participation in international public
affairs by socially based, non-state actors is not new,11 it appears that
the current scope of non-profit, non-governmental activity at all politi-
cal levels far exceeds that found in the historical record. Not only have
social actors become more involved in many international meetings and
institutions, and in transnational networks and alliances of various types.
They have also become instrumental in the establishment of a growing
“Regulation for the rest of us?” 117
number of semi-public and private “transnational regimes” intended to

regulate negative environmental and social externalities that have, so far,
not been addressed through public international conventions and laws.
Social groups have come to fulfill a variety of normative and functional
roles, ranging from observers of elections, to advisors to UN projects
around the world, to writers and implementers of rules and regulations
in a range of global forums. Many of these organizations are also taking
upon themselves functional responsibility for seeing that regulations –
both national and international – are adhered to by both public and pri-
vate actors.12 As one observer of these efforts has noted, for example,
Private organizations have recently established numerous programs aimed at im-
proving the environmental performance of industry. Many of the new programs
seek to define and enforce standards for environmental management, and to
make it difficult for producers not to participate in them. They claim, explicitly
and implicitly, to promote the public interest. They take on functions generally
performed by government regulatory programs, and may change or even dis-
place such programs. Private environmental regulatory programs thus have the
potential to significantly reshape domestic and international policy institutions
by changing the locus, dynamics, and substance of policy making.13
In concert with the arguments laid out by the editors of this volume,
there are at least two frameworks through which such regulation can be
viewed. The first is an instrumental approach: globalization imposes costs
on certain groups that cannot be recouped without some degree of inter-
vention into markets that will redistribute benefits. This, however, leads
to conflicts over efficiencies in the new international division of labor,
which cannot be easily resolved. The second is an approach that rests
on what the editors call “moral authority,” in this instance, mechanisms
to introduce social justice into international institutions and practices.
Because states, by and large, shy away from considering issues of justice,
moral authority is being introduced through mostly private campaigns
and projects.
In this chapter, we examine and analyze these institutional develop-
ments, with a particular focus on the activities of non-governmental or-
ganizations and “global civil society” (for the purposes of this chapter, we
exclude businesses and corporations from our analysis).14 The first part
of the chapter discusses the changing global regulatory environment and
some of its causes. The second section examines what we call the “new
global division of regulatory labor” and the role of global civil society in
this process. In the third part, we address the modalities through which
such regulatory arrangements are being established and describe briefly
several civil society-based regulatory regimes. We conclude with a few
cautionary observations.
Several preliminary notes: throughout this chapter, we use the term

“globalization” to denote a material, an ideological, and a cognitive
process.15 Globalization is material in the sense that it involves the move-
ment of capital, technology, goods, and, to a limited degree, labor to
areas with high returns on investment, without regard to the social or
political impacts on either the communities and people to which it moves
or to those left behind. Globalization is ideological in the sense that such
movement is rationalized in the name of “efficiency, competition, and
profit.” And globalization is cognitive in the sense that it fosters social
innovation and reorganization in existing institutions, composed of real,
live people, without regard to the consequences for them. In all three re-
gards, although globalization opens numerous political opportunities for
social movements and other forms of political organization and action,
a not uncommon result is disruption to existing forms of beliefs, values,
and behaviors. Finally, regulation includes not only public laws governing
practices, both permitted and forbidden, but also private arrangements
as well as socially emergent norms, principles, and customs.
Whither global regulation?

In spite of repeated forecasts of the “end of the nation-state,”16 there is
little question that the state will remain an important actor in world poli-
tics for some time to come. For the foreseeable future, and in many parts
of the world, the strong, industrialized state as a political institution will
maintain much of its capabilities, its material and discursive powers, and
its domination of the political imaginary.17 Acknowledging the continuing
importance of the state is not, however, the same as saying it will continue
to be the same institution or remain as central to world politics as it has
been for the past sixty or three hundred years. Indeed, there are major
transformations underway in the state as a political institution. States are
decentralizing, deregulating, and liberalizing in order to provide more
attractive economic environments for financial capital and, as govern-
ments proceed along this path, the domestic safety nets provided by the
welfare state are being dismantled.18 That safety net, it should be noted,
includes not only policies for health and safety, environmental protection,
public education, and so on, but also standard sets of rules that “level the
economic playing field” and ensure the sanctity of contracts within coun-
tries. These are especially important to both citizens and capital. For the
former, it ensures that all parts of a country will, in theory, hew to similar
political and social rules and standards while, for the latter, it reduces
transaction costs, increases economies of scale, and allows business and
exchange to take place under conditions of relative certainty and stability.
Globalization has destabilized this pattern. Nowadays, the greatest

profits are to be found in the high-tech and information industries, in
transnational finance and investment, and in flexible and niche produc-
tion and accumulation. This means looking beyond national borders for
ways in which to deploy capital, technology, and design, and to gain ac-
cess to factors of production, in order to maximize returns on investment
and secure entry to foreign markets. The fact that different countries have
different regulatory standards and factor costs is an advantage to capital,
for it allows production in low-cost locations for export to high-cost ones.
At the same time, however, one obstacle to capital mobility and broader
economic growth is the transaction and other costs that result from com-
pliance with more than 100 sets of national regulations (not to mention
other costs that might arise in the course of “doing business” with local
authorities). From the perspective of global capital, it is preferable to deal
with single sets of rules that apply to all countries, as is increasingly the
case within the European Union19 and among the members of interna-
tional regimes.20
But is this counter to our argument about “deregulation”? Not at all.
To be sure, globalization of production and capital has been accompa-
nied by liberalization and, at the rhetorical level, at least, a commitment
to the deregulation of markets. But therein lies a central paradox of our
times: a self-regulating market system is, as Karl Polanyi put it more
than fifty years ago in The Great Transformation (1944/1957), a “stark
utopia”; indeed, markets require rules in order to function in an orderly
fashion.21 Thus, while “deregulation” is the mantra repeated endlessly
in virtually all national capitals and by all international capitalists, it is
domestic deregulation that capitals and capitalists desire, not the whole-
sale elimination of all rules. Selective deregulation at home may create
a lower-cost environment in which to produce, but uncontrolled dereg-
ulation everywhere creates uncertainty and economic instability. Hence,
international regulation is relied on increasingly for keeping the global
economic system together and working. Note well that this does not in-
clude transnational social regulation. In addition to reducing transaction
costs to capital of 190 different sets of national laws, such regulatory
harmonization is also intended to “eliminate politics” from certain con-
flictual issue areas by shifting regulatory authority out of the domestic
sphere and into the international one. There, representative national and
subnational institutions lack power and any ability to intervene, thereby
trumping the “two-level game” problem.22 While there is no gainsaying
that some interstate regimes do serve essential regulatory functions, oth-
ers simply remain a means for dominant countries to protect their own
parochial interests.
As we noted above, the spread of production, trade, and markets has

changed the playing field in certain ways that interstate regimes do not
address. One set of problems is the negative social, economic, and en-
vironmental impacts that cannot be eliminated by nation-states acting
either unilaterally or in small, exclusive groups.23 The literatures on col-
lective action and on international relations propose that elimination of
such problems requires cooperation among states, leading to the creation
of interstate regimes. Such agreements, however, comprise only a part
of the full repertoire of institutional mechanisms for dealing with what
are, from the neoclassical perspective, externalities. At the same time that
regimes are being constructed for the purpose of dealing with externali-
ties, they are also serving the cause of regulatory harmonization so that
no country will, in principle, be disadvantaged with respect to another.
This, however, leads to a second difficulty: such harmonization may not
be very rigorous, or it may even make illegal domestic regulation that is
intended to protect environmental resources and to maintain standards,
as has been seen in some of the WTO’s recent rulings made through the
dispute resolution mechanism.
Efforts to extend international regulation to environmental and so-
cial standards at high levels are, as noted earlier, strongly opposed by
many government authorities, corporate officials, and prominent aca-
demics, especially in the United States. These individuals generally find
supranational rules to be acceptable if they involve barter, banking, bud-
get deficits, or borrowing, but inappropriate if environmental protection,
human rights, labor standards, or distributive justice are involved. And,
they argue, it introduces “politics” into matters that should be addressed
through efficient markets. For example, neoliberal economists tend to re-
gard low working standards as a crucial element of a particular country’s
comparative advantage within the international division of labor. The
specific levels at which standards are set and followed is, according to
the conventional argument, a function of a state’s “cultural preferences.”
Any attempt to legislate or alter these preferences would, it is claimed,
constitute an unwarranted intrusion into national sovereignty and result
in inefficient, politicized outcomes.
The contradiction embedded in this stance is, of course, that a state
wishing to maximize its comparative advantage, whether in labor, raw
materials, or environmental protection, would set such standards at a
very low level, whatever its actual “cultural preferences” might be. In
other words, the requirements of effective and efficient participation in
the international division of labor mandate that developing countries,
many of which are in competition with each other to acquire and retain
foreign investment, minimize the costs of those factors in which they hold
a comparative advantage. This means that a so-called preference for low

social and environmental standards is imposed exogenously and is not a
“cultural preference” as is often claimed.
One consequence of this approach is that international regulatory har-
monization does not so much eliminate politics from contentious issue
areas as privilege the political desires and goals of transnational capital
and corporations. By limiting debates to small groups of national repre-
sentatives and company executives, and “letting the market do it,” many
of the most influential international regulatory arrangements – especially
economic ones – have become both opaque and non-democratic as well as
quite limited in scope.24 And, with a few exceptions, where transnational
social regulations have been promulgated, the direction of harmonization
has been more in the direction of the “lowest common denominator.”
Absent popular initiatives and efforts to counter such tendencies, the
trend in the future is likely to be toward greater privatization of regula-
tion and less democracy and accountability around the world. This latter
point is of considerable concern, but it is not the specific focus of this
chapter. Rather, our focus is on the nature of activist responses to the
limited and relatively closed nature of most interstate regulatory arrange-
ments, and to the growing number of transnational regulatory initiatives
that have appeared in recent years and that are not organized directly
through nation-states or managed by state-directed international organi-
zations. It is to this “new division of regulatory labor” that we now turn.
The new global division of regulatory labor

International regulation has not always been as public an affair as it is
today (and James Scott argues that, even today, much regulation is cus-
tomary rather than public).25 Historically, major social activities within
societies were governed by customs, laws, and contracts among and be-
tween individuals and groups, often but not always with the approval
or support of the state.26 For example, medieval guilds formulated strict
rules governing membership and practice; this form of self-regulation has
been carried over into the present in the medical and legal professions
(which, nevertheless, are permitted to regulate only through explicit au-
thorization by local, provincial, and national governments). Maritime law
is an arena where there has long been and continues to be a considerable
amount of private regulation.27 Another example can be found in com-
mon pool resource systems, such as those described by Elinor Ostrom
and others.28 The trend toward public regulation was, as Craig Murphy
has documented, a consequence of the growing marketization and indus-
trialization of society as well as of growth in long-distance trade.29 With
bonds of social trust dissolved in the acids of economic exchange, caveat

emptor and “know thy neighbor” were no longer sufficient guides against
fraudulent practices and dangerous products. The welfare state repre-
sented the apotheosis of public regulation and, although there has been
a strong rhetorical commitment in liberal democracies to deregulation
since about 1980, it is not so clear that this has actually come about.30
In any event, after World War II, most regulation remained national
and state-sanctioned. There were certain sectors in which international
public regulation was instituted, as in the control of the spread of nuclear
weapons, the allocation of radio and television frequencies and geosyn-
chronous satellite slots, and so on.31 There were, as well, private or-
ganizations that certified the quality and performance of other private
organizations, such as the Better Business Bureau, Good Housekeeping,
and the Consumers’ Union in the United States. In a few cases, national
regulatory systems were “internationalized” and adopted as the basis for
regimes. For example, the safety rules of the US Federal Aviation Admin-
istration have been generally adopted by all national aviation authorities,
although they are not always rigorously followed. Finally, the tradition of
semi-private (e.g., International Red Cross) and private (e.g., CARE) vol-
untary organizations providing assistance internationally is one that never
disappeared completely, even during World War II. Domestic public reg-
ulation also had the effect of limiting entry into markets and professions
(a story told by Frank Norris in MacTeague, a novel about the profes-
sionalization of dentistry, and its consequences, during the late nine-
teenth century), and international regulation has had much the same
effect in areas such as nuclear weapons development and agricultural
trade.
Today, this state monopoly over regulation is well past its twentieth-
century apogee. The “fluidization” of regulatory space is a feature arising
from globalization, the declining authority of the state, and the grow-
ing tendency of individuals and organizations to act outside traditional
rules and frameworks.32 One consequence of the change in the locus
of regulation from the state to other arenas is that, although the state
remains the most visible actor in international relations, the jurisdictional
authority monopolized by states during the past fifty years or so is spread-
ing throughout an emergent, multilevel, and, for the moment, very diffuse
arrangement of globalizing governance that has certain features that we
might associate with a world government, but that lacks numerous fea-
tures of such a system.
Theda Skocpol argues that political community and the regulation of
activities that follow – even in a federal state – are not limited to discrete
levels of government:
On the one hand, states may be viewed as organizations through which official
collectivities may pursue collective goals, realizing them more or less effectively
given available state resources in relation to social settings. On the other hand,
states may be viewed more macroscopically as configurations of organizations
and action that influence the meanings and methods of politics for all groups and
classes in society.33
Skocpol offers here a conception of the state that is, perhaps, too broad in
encompassing society, but her point is an important one. The state is more
than just its constitution, agencies, rules, and roles. It is embedded, as
well, in a system of governance the operation of which rests on more than
statist institutions. From this view, state and civil society can be seen as
being mutually constitutive and, where the state engages in government,
civil society often plays a role in governance. James Rosenau describes
governance as
a more encompassing phenomenon than government. It embraces governmen-

tal institutions, but it also subsumes informal, non-governmental mechanisms
whereby those persons and organizations within its purview move ahead, satisfy
their needs, and fulfill their wants . . . Governance is thus a system of rule that
is as dependent on intersubjective meanings as on formally sanctioned constitu-
tions . . . or regulatory mechanisms in a sphere of activity which function effec-
tively even though they are not endowed with formal authority.34
When we examine trends in transnational regulation, what is striking,

especially in terms of relationships between social actors and institution-
alized mechanisms of government, as well as capital and international
regimes, is the growth of institutions of governance at and across all
levels of analysis, from the local to the global.35 Subsumed within this
system of globalized governance are institutionalized regulatory arrange-
ments, such as interstate regimes and less formalized systems of norms,
rules, and procedures that pattern behavior without the presence of writ-
ten constitutions or material power. This system is not a “state,” as we
commonly understand the term, but it is state-like, in Skocpol’s second
sense. Nor, lacking legislative institutions, is it particularly representative,
transparent, or democratic.
But in the emerging, multilevel patterns of political action, based on
states and international institutions as well as transnational alliances,
coalitions, communication, and networking among social movements and
non-governmental organizations, we can see indications of the diffusion of
global regulatory governance beyond national and interstate institutions.
Within this system, “local” management and regulation are as important
to coordination within and among local, national, and global political
“hierarchies,” regions, and countries as the international management
manifested in traditional regimes and international organizations. We see

the transfer of functional responsibility and authority downward to the re-
gional and local levels as well as upward to the global level. All of this is
taking place, moreover, with the full connivance of national governments,
aided and abetted by a wide variety of other institutions and actors.
In this globalizing “heteronomy,” regulatory authority is distributed in-
creasingly among many centers of action, often focused on very specific
issue areas and problems. This authority is developing, in part, because
specific social actors are taking over responsibilities no one else wants
and, in part, because of expertise acquired through global networks of
knowledge and practice. The redistribution of authority is generating a
form of globalized functional differentiation (rather than world feder-
alism), inasmuch as different regulatory authorities, both governmental
and social, are dealing with specific applied problems – environmental,
human rights-based, social – rather than a comprehensive range of gen-
eralized ones, as the state has done during the decades past. Moreover,
because these problems are embedded within a global economic system,
local regulatory functionalism reaches beyond localities into and through
the global system.36 Note that this concept is not the same as the func-
tionalism of Mitrany37 or the neofunctionalism of Haas.38 Whereas those
theories envisioned political integration as the outcome of international
functional coordination, it is much more likely that this type of func-
tionalism will operate at multiple levels, contributing perhaps to political
fragmentation without necessarily fostering political integration, as such.
To a growing degree, moreover, regulatory functions are coming to
be located at that level of social organization at which the appropriate
combination of “local” and “global” knowledges comes together. This
level may be global, regional, or local, although many of the new regu-
latory authorities will be based in the latter two. It is in this context that
what we call “global civil society” acquires its importance. Elsewhere,
Lipschutz has argued that global civil society represents a structure of ac-
tors and networks within which new regulatory authorities and arrange-
ments emerge.39 As conventionally understood, civil society includes
those political, cultural, and social organizations of modern societies that
have not been established or mandated by the state or created as part of
the institutionalized political system of the state (e.g., political parties),
but are nevertheless engaged in a variety of political activities that are
imbricated with institutionalized politics. Globalizing the concept ex-
tends this arrangement into the transnational arena, where it constitutes
a proto-society composed of local, national, and global institutions, cor-
porations, and non-governmental organizations. Global civil society can
be understood, therefore, as shorthand for the growth in neofunctional
authority resulting from a “proliferation” of political actors beyond the

state.
Civil society associations, understood in the broadest sense, fulfill mul-
tiple roles and, although the balance within individual groups between
altruism and self-interest can vary greatly, some of both can be found
in all of them. Indeed, many associations that fall into this category go
beyond collective self-interest to active pursuit of the collective politi-
cal goods. Furthermore, although civil society might be considered by
some to be a liberal bourgeois fetish, it cannot be denied that most of
the world’s richer and more powerful states are both liberal and bour-
geois. For better or worse, therefore, ideology informs practice, and vice
versa. What is, perhaps, more important for our purposes is that the state
and those organizations in civil society engaged in regulatory functions
are neither independent nor autonomous of each other. A state, whether
liberal or not, relies on some version of civil society for its legitimacy.
Conversely, a civil society cannot thrive without the legitimacy bestowed
on it by the state, whether or not its government is democratic. It is in
this context that the “privatization” of regulatory authority and the pos-
sible need to counter certain restricted forms of rule-making should be
contemplated. Those forms of global regulation that serve the narrow
self-interests of certain actors will be legitimated through the interna-
tional state-like processes that pass for global governance. Without some
sort of countervailing movement to open up these projects to scrutiny and
public participation, the results are likely to be even more undemocratic
than is currently the case.
Emerging forms of global regulation

While regulation is generally thought of in terms of rules stipulating stan-
dards for permitted and forbidden behaviors and practices, mandated
by legislatures, promulgated by some administrative agencies, monitored
and enforced by others, and affirmed by the judicial organs of the state,
the newly emerging forms of global private regulation are much more
diverse.40 The extension of private regulatory authority and reach away
from the state can be categorized along two dimensions: (1) organiza-
tional form and sector (public or private); and (2) regulatory tools ap-
plied (command and control or market-based). Table 1 summarizes the
resulting categories and provides some examples. The “real world” is
not, of course, quite so simple. If we look at the range of actors involved
in the “privatization” of regulatory activities, we find that they run the
gamut from wholly public to wholly private, including more conventional
interstate organizations that have begun to “bring in” non-state actors, to
Table 1: Institutional arenas of global regulation
Political Economic
Public Interstate regimes Activist regimes

World Trade Organization Burma boycotts
International Labour Organization International Tobacco Control
Private Transnational regimes Market regimes
Fatal Transactions (war diamonds) Anti-sweatshop movement
International Land Mines Convention ISO-14000
corporate associations and social movement service providers that have

little or nothing to do with public political authorities.
Among the many emerging global regulatory projects are the following:
Labor conditions in the apparel industry: For the moment, there
are no international regimes, outside the largely unenforced
conventions of the International Labour Organization, that
explicitly address labor conditions in the apparel industry, a
good portion of which is characterized by “sweatshop” con-
ditions. The growth in substandard workplaces is thought to
be driven by free trade and wage competition, which has led
many American apparel companies to contract with underreg-
ulated overseas manufacturers.41 Existing trade agreements do
not address labor issues and countries that are signatories to
the General Agreement on Tariffs and Trade (GATT) and the
WTO are not permitted to restrict imports on the basis of
the conditions of their manufacture. Over the past ten years,
a number of grassroots organizations have emerged to lobby,
educate, and challenge US apparel manufacturers to improve
working conditions and wages in domestic and foreign shops.
These groups have achieved a small number of successes, but
they have been challenged by the Fair Labor Association, a
coalition of corporations and NGOs organized by the White
House to formulate voluntary codes of conduct for apparel
production.42
Controlling international trade in small arms: The International
Action Network on Small Arms (IANSA) is a global network
of organizations seeking to reduce both demand and supply of
light weapons, through a variety of tactics and strategies, in-
cluding education, information-sharing, development of
culturally appropriate “message strategies,” and international
regulation. IANSA was established in 1998 and has been
consciously modeled on the coalition that was instrumental

in the promulgation of the International Land Mines Conven-
tion. IANSA is a very new project, and it is likely to be strongly
resisted because of the vast and growing global market in small
arms and light weapons. Indeed, at a July 2001 United Nations
conference on the problem, the United States was adamantly
opposed to such international regulation.
The global reporting initiative: This project has been established
by the Coalition for Environmentally Responsible Economies
(CERES) and “incorporates the active participation of cor-
porations, non-governmental organizations (NGOs), interna-
tional organizations/UN agencies, consultants, accountancy
organizations, business associations, universities, and other
stakeholders from around the world.” The objective is to
“promote international harmonization in the reporting of
relevant and credible corporate environmental, social and
economic performance information to enhance responsible
decision-making.”43
The global toxics initiative: The World Wildlife Fund has begun a
project to “end the production, release and use of chemicals
that are endocrine disruptors, bioaccumulative or persistent
within one generation by no later than 2020.” This is taking
place in concert with interstate negotiations to control a range
of biologically dangerous chemicals, which resulted recently
in the UN Convention on Persistent Organic Pollutants.44
Table 2 lists a number of civil society based regulatory initiatives.
One issue area in which this range of regulatory projects is especially
evident is in the environmental arena and, in particular, efforts to insti-
tutionalize sustainable forestry on a transnational scale. In the area of
forestry practices, regulation through conventional international regimes
has been limited, although several agreements, such as the Forestry
Principles offered at the UN Conference on Environment and Devel-
opment (the “Earth Summit”) in 1992, remain on the agenda and might
yet be revived.45 Here we find four basic organizational forms.
1. Public agreements and conventions, which are primarily interstate and
intergovernmental regimes or organizations that seek harmonization
of international standards, as have appeared in connection with the
Kyoto Protocol to the UN Framework Convention on Climate Change,
the International Tropical Timber Organization (www.itto.or.jp/Index.
html ), and the International Centre for Forestry Research (www.cgiar.
org/CIFOR/ ). The resulting regulations are expected to be legislated
domestically, where they will apply to both public and private actors.
Table 2: Civil society-based regulatory campaigns
Issue area Sample of activist regulatory campaigns
AIDS/HIV Global Strategies for HIV Prevention

Anti-big dams International Rivers Network; World Commission on Large
Dams
Anti-GMO Campaign to Ban Genetically Engineered Foods; Genetic-ID
Child soldiers Coalition to Stop the Use of Child Soldiers
Climate Climate Action Network
Corporate accountability As You Sow; Business for Social Responsibility
Diamonds Fatal Transactions International Diamond Campaign
Forestry Forest Stewardship Council; Forest Products Certification
Indigenous rights Survival International; International Indian Treaty Council
Labor Campaign for Labor Rights; Maquiladora Health and Safety
Network
Land mines International Campaign to Ban Land Mines
Organic food Organic Consumers Organization; IFOAM; Pure Food
Campaign
Small arms trade International Action Network on Small Arms
Species diversity TRAFFIC; Conservation International
Tobacco International Tobacco Control Network; Tobacco Free
Initiative
Toxics WWF Global Toxics Initiative; Center for Ethics and Toxics
Trade monitoring Global Trade Watch; Ethical Trading Initiative
Women’s rights Amnesty International Campaign for Women’s Human
Rights
2. Quasi non-governmental organizations (quangos) are organizations with

public, semi-public, and/or private memberships, charged with state-
authorized functions, such as the International Organization for
Standardization (www.iso.ch/). Members of international quangos
usually include representatives of both public authorities and private
actors.
3. Semi-private initiatives involve organizations that are either non-
governmental organizations or coalitions (Rainforest Alliance; www.
rainforest-alliance.org/) or include NGOs, social groups, and corporate
representatives (Forest Stewardship Council; www.fscoax.org/principal.
htm). Regulations are voluntary and intended to apply to corporate
activities, in either public or private realms, but are not subject to
state vetting or rejection. At least one such group offers certification
to private producers.
4. Private initiatives involve organizations that are either corporate asso-
ciations (Initiative zur Föderung nachhaltiger, or IFW) or individual
companies (Scientific Certification Systems; www.scs1.com/forests.

html ). Regulations are voluntary and meant to apply only to mem-
bers (IFW) or to specific industrial sectors (as in forestry standards),
or producers may hire auditors to provide certification.
Putting these two dimensions together suggests the potential for a wide
range of approaches to issues. Table 3 lists a number of the international
regulatory arrangements and initiatives underway with respect to sus-
tainable forestry practices. Although this listing is not comprehensive,
and some of the examples defy simple categorization, they illustrate the
broad range of organizational forms and methods.
Forms of regulatory tools

As the discussion and tables suggest, the process of global regulatory
privatization is being achieved through a growing reliance on markets
and market-based strategies as mechanisms to foster compliance. As
progress in the formulation of conventions and protocols has slowed
and state and corporate resistance has grown – something especially evi-
dent in the environmental issue area – there has also developed a general
trend toward greater reliance on markets. The out-of-court settlement in
1999 over working conditions in Saipan, between a number of apparel
manufacturers and the Union of Needletrades, Industrial and Textile
Employees, Global Exchange, the Asian Law Caucus of San Francisco,
and Sweatshop Watch of Oakland, demonstrates that this trend toward
market-based regulatory instruments is appearing in other social welfare
and justice issue areas, as well.
Historically, the regulation of economic practices has been treated
separately from environmental and social practices. In using the term
“economic practices,” we refer specifically to transactions that take place
in a regulated market setting, in which rules are meant to ensure the ob-
servance of contracts, the probity of sellers, and the quality of goods and
services. We use the term “environmental and social practices” to refer to
those activities associated with the production and consumption of ma-
terial goods, which lead to pollution of air and water, toxics production,
health impacts, labor standards, etc., and which have been regulated by
rules meant to reduce such externalities. While there has always been
a significant economic element in regulation of externalities as defined
here, until the 1980s rules were motivated more strongly by ecological,
health, and safety concerns. During the 1970s, a growing debate over
the costs of regulation led to the growing use of cost–benefit analysis, a
practice formally institutionalized during the 1980s. This led, in turn,
to a search for more “cost-effective” regulatory strategies that appeared
Table 3: Global initiatives in regulation of sustainable forestry
Name Type Membership Objective
Center for International Quango Countries, but also To improve the scientific basis for ensuring the balanced
Forestry Research NGOs, universities, management of forests and forest lands; to develop policies
(CIFOR) etc. and technologies for sustainable use and management of forest
goods and services.
Forest Stewardship Semi-private Environmental NGOs To establish internationally recognized principles and criteria of
Council (FSC) (civil society and NGOs, wood forest management as a basis for accrediting regional certifiers
groups) products buyers, and
certifiers in three
assemblies
Initiative zur Föderung Private group German timber trade Dual process of certification whereby nationally accredited
nachhaltiger unions, importers, and bodies within timber-exporting nations would certify that
Waldbewirtschaftung processors producers have met high standards of forest management for
(IFW) European labeling
Intergovernmental Public Nine countries To develop a scientifically based framework of criteria and
Working Group on indicators for the conservation, management, and sustainable
Global Forests (IWGF) development of boreal and temperate forests
International Tropical Public Producer and consumer To provide an international reference document upon which
Timber Organization countries (timber more detailed national standards could be developed to guide
trade, international sustainable management of natural tropical forests
organizations, NGOs
present as observers)
ISO 14001 Quango National standards bodies ISO series 14000 template proposed for development of
sustainable forestry standard; rejected but under study
Kyoto Protocol Public Signatory countries To establish terms and conditions to meet provisions of Kyoto
Protocol regarding management of forests and their role as
carbon sinks
Rainforest Action Network Semi-private Individual members and To protect the rainforests and support the rights of their
(NGO) allied NGOs in other inhabitants through education, grassroots organizing, and
countries non-violent direct action
Scientific Certification Private firm in No membership; “Forest Conservation Program” to evaluate forest management
Systems Oakland, CA producers are certified against objective and regionally appropriate principles of
sustainable forestry
SGS Forestry Private firm in No membership; “Carbon Offset Verification Service” assesses, surveys, monitors,
Oxford, UK producers are certified and certifies project development and management
Smart Wood (Rainforest Semi-private No membership; NGO Operations certified as Smart Wood sources according to the
Alliance, RA) (civil society certifies timber extent to which they adhere to RA’s Generic Guidelines for
groups) producers Assessing Natural Forest Management
Source: Bryan Evans, “Technical and Scientific Elements of Forest Management Certification Programs,” paper prepared for the conference
on Economic, Social and Political Issues in Certification of Forest Management, University of Pertanian, Malaysia, 12–16 May 1996, at
www.forestry.ubc.ca/concert/evans.html; CIFOR web site, at www.cgiar.org/CIFOR/general/about.html; SGS Forestry Brochure SGS2118/0597.
Activities
Economic
affecting the
activities
environment
Regulation Regulation of
of economic environmental
activities impacts
Figure 1: The conventional relationship between function and regu-

lation
Activities
Economic activities affecting the
environment
Regulation of
Regulation of
environmental
economic activities
impacts
Figure 2: The changing relationship between function and regulation
to involve less political intervention. Figure 1 illustrates in a very simple

fashion the relationship between economic practices and environmental
externalities.
Over the past decade or so, for both ideological and cost reasons, this
pattern has begun to change, as shown in figure 2. Market-based mecha-
nisms, such as tradable pollution permits and independent certification,
are replacing or supplementing command and control methods as part
of an effort to, in this example, manage environmental impacts.46 The
market-based approach has the supposed virtue of increasing the effi-
ciency with which financial resources are used, but it is also driven by
the ability of the rich to purchase rights to pollute from the poor, which
could result in a transfer of financial resources from the former to the
latter, thereby allowing the poor to pay the costs of environmental im-
provement for themselves. But there might be undesirable consequences
from this, as well, because if market-based auctions and sales operate as
suggested by neoclassical economics, they may have the effect of pric-
ing poor countries completely out of the market to pollute and still leave
them with insufficient funds to purchase newer environmentally friendly
technologies and goods.
What is interesting, in any event, is that, parallel to the growing trend of
using economic techniques to regulate environmental practices, there has
also developed a trend toward utilizing environmental controls to regulate
economic activities (as in the inclusion of environmental concerns in trade
agreements). Producers absorb the costs (or pass them on to consumers)
of internalizing environmental externalities by adhering or subscribing
to a set of regulated behaviors and practices that, when vetted by the
appropriate authority, certify them as “environmentally friendly.” These
regulations are expected to appeal to consumers who, looking for the ap-
propriate certifying mark, will prefer environmentally friendly goods to
unfriendly ones. While the change in behavior is motivated by economic
concerns, the form of the regulation is not, in itself, market-based; rather,
these rules are somewhat akin to a moral code that fosters an environmen-
tal “civic virtue,” hoping that a shift in consumer demand for such goods
will lead to a commensurate shift in supply, thereby fostering “green
markets.”
We can say, therefore, that such regulatory initiatives are motivated
by three somewhat different incentives, which we label normative, func-
tional, and instrumental (for lack of a better term). Normative incen-
tives have to do with notions about justice, equity, indigenous rights,
biocentrism, and so on. Functional incentives have to do with develop-
ment and implementation of protection and conservation programs. And
instrumental incentives have to do with the profits and “good works” re-
sulting from certification or approval. Thus, considering the initiatives
described in table 3, the Rainforest Action Network appears to be moti-
vated primarily by normative incentives; the Forest Stewardship Council
by functional incentives; Scientific Certification Systems by instrumental
incentives.
In recent years, the tool that has come into the greatest use by pri-
vate regulators is certification of both national and private practices.
In the environmental area, this is accomplished through what is called
“eco-labeling.”47 An eco-label is a claim placed on a product, having
to do with its production or performance, that is intended to enhance
the item’s social or market value by conveying its environmentally ad-
vantageous elements. Such a label is intended to make the product more
attractive to the environmentally conscious consumer.48 Three categories

of eco-labels are widely recognized: first-, second-, and third-party.49
First-party labeling, the most common and simplistic approach, entails
producer claims about a product, such as “recyclable,” “ozone-friendly,”
“non-toxic,” or “biodegradable.” In the absence of a mechanism for ver-
ifying these claims, the only guarantee that the product performs accord-
ingly is the producer’s reputation.
Second-party labeling is conducted by industry-related entities, such
as trade associations, which establish guidelines or criteria for making
such environmental claims. Once the standards are met or the guidelines
followed, an industry-approved label is placed on the product stating or
verifying the product’s environmentally friendly qualities. In this instance,
corporate members of the certifying organization will seek to ensure the
label’s value, and to mandate its use, so that no single producer will have
an advantage over any other.
Third-party, or independent, labeling is performed by either a gov-
ernmental agency, a non-profit group, a for-profit company, or an or-
ganization representing some combination of these three. As with the
second-party type, third-party eco-labeling programs set guidelines that
products must meet in order to use their label. They may also conduct
audits in order to ensure compliance with the guidelines. As the name im-
plies, third-party organizations are not affiliated with the products they
label. The Forest Stewardship Council is engaged in third-party inde-
pendent labeling and auditing, whereas the International Organization
for Standardization provides second-party labeling based on a company’s
program for compliance with the ISO’s own environmental standards.50
There appears to be a growing demand for such regulation, although
the size of the market remains small and its future uncertain. For example,
the total area of sustainably certified forests is certainly less than 1 percent
of global forests. At the same time, however, corporations engaged in the
production of material goods have no inherent interest in environmental
protection, with two exceptions. First, a failure to reduce externalities
may increase variable costs from fines and lost business, which requires
the kind of policing that ISO 14000 does not address and that many cor-
porations are loath to accept. Second, having a “green” reputation could
increase corporate profits. Purchasing rights to pollute, as opposed to re-
ducing pollution, may be efficient in aggregate but, in an open-bid market
setting, the ceiling to the cost of such permits may be quite high even as
there is little favorable publicity to be gained from admitting that one
continues to pollute. A producer who voluntarily controls externalities,
and engages in virtuous behavior, can advertise such practices and, with
luck, grab a little extra market share. It might even be possible to charge
a premium for green certification, for which high-income consumers will

(it is hoped) gladly pay. So, there is available here both a moral and a mar-
ket opportunity. Corporations can do well by doing good, while certifiers
can do good by doing well.
Understandably, some are wary of getting into the business of peddling
environmental morality as such, even if there might be money to be made
from it. For one thing, there is a great deal of sensitivity to “political inter-
vention” into corporate behaviors (although this does not prevent some
governments from intervening in other countries’ behaviors). For an-
other, there is the argument, made by Bhagwati51 and others, that such
moralities are culturally ethnocentric, and that it is not “fair” for all coun-
tries to be forced to hew to the same standards of environmental quality
(an argument, made by Larry Summers in his famous memo about the
dearth of pollution in poor countries,52 which seems somewhat hollow, in
view of the alacrity with which economic standards are accepted by cul-
turally different countries). Finally, some attempts to devise international
regulatory standards that directly affect economic practices have come
under intense lobbying and log-rolling pressures, as in the case of the
Kyoto Protocol to the UN Framework Convention on Climate Change.
Nonetheless, there is a growing corporate good behavior “movement”
that believes certification is both moral and good for the bottom line.53
The ultimate question remains unanswered: can action through the
market provide the incentives for the maintenance and enforcement of
the kind of private self-regulation described here? Producers will be at-
tracted to such approaches only if environmentally conscious consumers
choose their environmentally friendly certified products. But setting the
premium for such products at the “correct” level is no easy task. More-
over, it is one thing to tack a 10 percent green surcharge on a piece of
furniture that may cost between US$ 100 and US$ 1,000; it is quite an-
other to charge an extra 10 percent on a US$ 20,000 remodeling job or
a US$ 300,000 house. Over the past fifty years, industrial societies have
been built on the premise that lower prices enhance purchasing power and
maximize individual satisfaction; it will not be so easy to convince con-
sumers that they will be better off if they exercise environmental virtue in
the marketplace. The invisible hand notwithstanding, self-interest rarely
offers a stable foundation for moral action.
Conclusions
In this chapter, we have presented several linked arguments. First, we pro-
posed that the processes associated with globalization, including domestic
deregulation, have fostered a demand for global regulation of social and
environmental externalities. This is similar to the “double movement”

first described by Karl Polanyi, although, in this instance, the movement
against self-regulating markets is taking place at both the domestic and
transnational levels rather than at the behest of governments.54 Second,
given structural restrictions on national reregulation in the social sector,
and the growing tendency for interstate organizations to yield to the de-
mands of capital as well as the fragmentation of political authority around
the world, there are a growing number of actors taking on the task of im-
posing or campaigning for new regulatory standards. Many of these actors
belong to what we call “global civil society.” Even though many of these
actors are semi-public or private, their activities are not focused on nar-
rowly defined private interests but, rather, address issues having to do
with a global common good. The range of frameworks within which new
regulations are being formulated is quite broad but, as a whole, they can
also be seen as part of an emerging structure of global governance. To
be sure, such frameworks are rife with contradictions, antagonisms, and
problems, and serious questions regarding representation and democra-
tization have not, so far, been addressed.55
In the terms proposed by the editors of this volume, and contributors
to it, is the emergence of privatized social regulation, on balance, to be
regarded positively or negatively? One’s answer to this question depends
largely on whether one believes that such regulation should fall within
the purview of markets or politics. Rules are necessary for the stability
of markets and credibility within them, but legitimacy is of equal im-
portance. If those engaged in exchange in markets do not feel they are
getting a fair deal, or those observing the working of markets believe that
externalized costs are excessively high, the legitimacy of markets will be
impaired to the detriment of the economy as a whole. Regulation through
privatized market mechanisms can establish such legitimacy only if the
rules are observed by everyone engaged in a particular market, and this
requires either self-discipline or external enforcement. Vested interests
are unlikely to be able to accomplish this in an effective and convincing
fashion.
However one regards contemporary political practices, there is, at least,
some notion, however residual, of concern for the public good. This is a
good that extends beyond the boundaries of specific markets to include
even those who lack the resources and voice to participate in privatized
social regulation. To be sure, some private efforts, such as the Forestry
Stewardship Council, do try to include all stakeholders in decision-making,
yet there are many others that make no such effort and ask the public to
trust in their good faith. The private good is deemed to be equivalent
to the public good – a highly questionable proposition. We do not mean
to dismiss entirely the potential of private authority and private regula-

tion; we only caution that it might not, in the long run, turn out to be
quite the panacea it appears to be today.

1 Ronnie D. Lipschutz, “From Local Knowledge and Practice to Global
Governance,” in M. Hewson and T. J. Sinclair (eds.), Approaches to Global
Governance Theory (Albany, N.Y.: SUNY Press, 1999), pp. 259–83.
3 D. Vogel, Trading Up: Consumer and Environmental Regulation in a Global
Economy (Cambridge, Mass.: Harvard University Press, 1995); S. K. Vogel,
Freer Markets, More Rules: Regulatory Reform in Advanced Industrial Countries
(Ithaca, N.Y.: Cornell University Press, 1996); J. Braithwaite and P. Drahos,
Global Business Regulation (Cambridge: Cambridge University Press, 2000).
4 Richard Falk, On Humane Governance (University Park, Penn.: Penn State
University Press, 1995), and Falk, Predatory Globalization: A Critique
(Cambridge: Polity Press, 1999).
5 Jagdish Bhagwati, “Trade and the Environment: The False Conflict?,” in
D. Zaelke, P. Orbuch, and R. F. Houseman (eds.), Trade and the Environ-
ment: Law, Economics, and Policy (Washington, D.C.: Island Press, 1993),
pp. 159–90.
6 Ronnie D. Lipschutz, After Authority: War, Peace and Global Politics in the 21st
Century (Albany, N.Y.: SUNY Press, 2000).
7 Stephen D. Krasner (ed.), International Regimes (Ithaca, N.Y.: Cornell
8 S. K. Vogel, Freer Markets, More Rules.
9 E. M. Graham, Global Corporations and National Governments (Washington,
D.C.: Institute for International Economics, 1996), and Louis Pauly, Who
Elected the Bankers? Surveillance and Control in the World Economy (Ithaca,
N.Y.: Cornell University Press, 1997).
10 Ramesh Mishra, Globalization and the Welfare State (Cheltenham, UK: Edward
Elgar, 1999).
11 Craig N. Murphy, International Organization and Industrial Change: Global
Governance Since 1850 (New York: Oxford University Press, 1994).
12 T. Princen and M. Finger (eds.), Environmental NGOs in World Politics
(London: Routledge, 1994); Ronnie D. Lipschutz, with Judith Mayer, Global
Civil Society and Global Environmental Governance (Albany, N.Y.: SUNY Press,
1996); Lipschutz, “Reconstructing World Politics: The Emergence of Global
Civil Society,” in Jeremy Larkins and Rick Fawn (eds.), International Society
After the Cold War (London: Macmillan, 1996), pp. 101–31; P. Wapner, Envi-
ronmental Activism and World Civic Politics (Albany, N.Y.: SUNY Press, 1996);
J. Smith, C. Chatfield, and R. Pagnucco (eds.), Transnational Social Movements
and Global Politics: Solidarity Beyond the State (Syracuse, N.Y.: Syracuse Uni-
versity Press, 1997); Margaret Keck and Kathryn Sikkink, Activists Across
Borders: Advocacy Networks in International Politics (Ithaca, N.Y.: Cornell
University Press, 1998); and D. Korten, Globalizing Civil Society: Reclaiming

Our Right to Power (New York: Seven Stories Press, 1998).
13 Errol E. Meidinger, “‘Private’ Environmental Regulation, Human Rights,
and Community,” Buffalo Environmental Law Journal, 2000, www.ublaw.
buffalo.edu/ fas/meidinger/hrec.pdf, viewed on 11 May 2000.
14 For a discussion of corporate “civil society,” see Virginia Haufler, Public Role
for the Private Sector: Industry Self-Regulation in a Global Economy (Washington,
D.C.: Carnegie Endowment for International Peace, 2001); Ronnie D.
Lipschutz, “Doing Well by Doing Good? Transnational Regulatory Cam-
paigns, Social Activism, and Impacts on State Sovereignty,” in John Mont-
gomery and Nathan Glazer (eds.), Challenges to Sovereignty: How Governments
Respond (New Brunswick, N.J.: Transaction, 2002), pp. 291–320.
15 Manuel Castells, The Rise of the Network Society (Malden, Mass.: Blackwell,
1996), and Lipschutz, After Authority.
16 Kenichi Ohmae, The End of the Nation-State (New York: Free Press, 1995).
17 Lipschutz, After Authority.
18 Mishra, Globalization and the Welfare State.
19 D. Vogel, Trading Up.
20 Graham, Global Corporations and National Governments.
21 Karl Polanyi, The Great Transformation (Boston: Beacon Press, 1957 [1944]);
W. R. Mead, “Trains, Planes, and Automobiles: The End of the Postmodern
Moment,” World Policy Journal, 12 (4) (Winter 1995/96), 13–32; and J. Attali,
“The Crash of Western Civilization: The Limits of Market and Democracy,”
Foreign Policy, 107 (Summer 1997), 54–63.
22 P. B. Evans, H. Jacobson, and R. Putnam (eds.), Double-Edged Diplomacy:
International Bargaining and Domestic Politics (Berkeley: University of California
Press, 1993).
23 Lipschutz with Mayer, Global Civil Society, chs. 2 and 3.
24 For a summary view of this point from the domestic perspective, see I. M.
Young, Justice and the Politics of Difference (Princeton, N.J.: Princeton Univer-
sity Press, 1990), ch. 3.
25 J. Scott, Seeing Like a State (New Haven: Yale University Press, 1998), ch. 1.
26 Braithwaite and Drahos, Global Business Regulation.
27 A. Claire Cutler, “Artifice, Ideology, and Paradox: The Public/Private
Distinction in International Law,” Review of International Political Economy,
4 (2) (1997), 261–85.
28 E. Ostrom, Governing the Commons: The Evolution of Institutions for Collective
Action (Cambridge: Cambridge University Press, 1990); D. W. Bromley (ed.),
Making the Commons Work (San Francisco: ICS Press, 1992).
29 Murphy, International Organization.
30 S. K. Vogel, Freer Markets, More Rules.
31 International Organization, P. Haas (ed.), Special Issue: Knowledge, Power,
and International Policy Coordination, 46 (1) (1992).
32 James N. Rosenau, Along the Domestic–Foreign Frontier: Exploring Governance
in a Turbulent World (Cambridge: Cambridge University Press, 1997).
33 Theda Skocpol, “Bringing the State Back In: Strategies of Analysis in
Current Research,” in P. B. Evans, D. Reuschemeyer, and Theda Skocpol
(eds.), Bringing the State Back In (Cambridge: Cambridge University Press,

1985), pp. 3–37.
34 James N. Rosenau, “Governance, Order, and Change in World Politics,” in
Rosenau and Ernst-Otto Czempiel (eds.), Governance Without Government:
Order and Change in World Politics (Cambridge: Cambridge University Press,
1992), pp. 4–5.
35 J. Leatherman, R. Pagnucco, and J. Smith, “International Institutions and
Transnational Social Movement Organizations: Transforming Sovereignty,
Anarchy, and Global Governance,” Working Paper 5:WP3, Kroc Institute
for International Peace Studies, University of Notre Dame, August 1994; and
J. Smith, Chatfield and Pagnucco, Transnational Social Movements.
36 One example of this is the growing environmental justice movement, which
is becoming globalized and addressing not only the local disposition of toxic
wastes but their export and disposal in other places around the world; see, e.g.,
A. Szaz, Ecopopulism (Minneapolis: University of Minnesota Press, 1994), and
Jennifer Clapp, Toxic Exports: The Transfer of Hazardous Wastes and Technologies
from Rich to Poor Countries (Ithaca, N.Y.: Cornell University Press, 2001).
37 D. Mitrany, A Working Peace System (Chicago: Quadrangle Books, 1966).
38 Ernst Haas, Beyond the Nation-State (Stanford: Stanford University Press,
1964).
39 Lipschutz with Mayer, Global Civil Society.
40 A. Claire Cutler, Virginia Haufler, and T. Porter (eds.), Private Authority and
International Affairs (Albany, N.Y.: SUNY Press, 1999).
41 E. Bonacich and R. Appelbaum, Behind the Label: Inequality in the Los Angeles
Apparel Industry (Berkeley: University of California Press, 2000).
42 Lipschutz, “Doing Well by Doing Good?”
43 See www.globalreporting.org/AboutGRI.htm.
44 See www.worldwildlife.org/toxics/globaltoxics/index.htm.
45 Ronnie D. Lipschutz, “Why Is There No International Forestry Law? An
Examination of International Forestry Regulation, Both Public and Private,”
UCLA Journal of Environmental Law and Policy, 19 (1) (2000/01), 155–82.
46 Note that a permit system does not entirely eliminate command and control
rules. Some cap must be set on pollution, either as a total for each individual
consumer of permits or as a total for the system as a whole, in which individual
consumers can then buy and sell permits.
47 See the Environmental Labeling Toolbox of the International Institute for Sus-
tainable Development for further information about eco-labeling, at iisd1.iisd.
ca/business/envirolabeling.htm.
48 Anil Markandya, “Eco-labeling: An Introduction and Review,” in Simon-
etta Zarrilli, Veena Jha, and Rene Vossenaar (eds.), Eco-labeling and Interna-
tional Trade (New York: St. Martin’s Press, 1997), pp. 1–20; and S. Bass and
M. Simula, “Independent Certification/Verification of Forest Management,”
background paper for the World Bank/WWF Alliance Workshop, Washington,
D.C., 9–10 November 1999 www.esd.worldbank.org/wwf/sim-bass.doc; viewed
on 11 May 2000.
49 D. J. Caldwell, “Ecolabeling and the Regulatory Framework: A Survey of Do-
mestic and International Fora,” prepared for the Consumer’s Choice Council,
Washington, D.C. (discussion draft), 30 October 1998, www.consumerscouncil.

org/ccc/; viewed on 11 May 2000.
50 J. Cascio, G. Woodside, and P. Mitchell, ISO 14000 Guide: The New Interna-
tional Environmental Management Standards (New York: McGraw-Hill, 1996).
51 Bhagwati, “Trade and the Environment.”
52 Summers, now the president of Harvard University, was chief economist at
the World Bank in 1991 when he wrote a memo asking “shouldn’t the World
Bank be encouraging more migration of the dirty industries to the LDCs [less
developed countries] . . . I think the economic logic behind dumping a load
of toxic waste in the lowest wage country is impeccable and we should face
up to that . . . I’ve always thought that underpopulated countries in Africa are
vastly underpolluted; their air quality is vastly inefficiently low compared to
Los Angeles or Mexico City.” Summers later disavowed the memo (“New
Treasury Secretary famous words as World Bank Chief,” Russell Mokhiber
and Robert Weissman, n.d., at aidc.org.za/archives/usts wb.html; viewed on 5
April 2002.
53 E.g., United Kingdom, Foreign and Commonwealth Office, Global Citizen-
ship: Business and Society in a Changing World (London: Foreign and Com-
monwealth Office, 2001).
54 Polanyi, Great Transformation. See also Stephen Gill, “Structural Change and
the Global Political Economy: Globalizing Elites and the Emerging World
Order,” in Yoshikazu Sakamoto (ed.), Global Transformation: Challenges to the
State System (Tokyo: United Nations University Press, 1994), pp. 169–99.
55 Lipschutz, “Doing Well by Doing Good?”
7 The global dimensions of religious
terrorism
Mark Juergensmeyer
During the Cold War, America’s prime enemy was the vast Soviet empire.
Ten years after the fall of that empire, America’s most wanted enemy was
a single person – Osama bin Laden – a man without a state. Shunned
by his native Saudi Arabia, bin Laden encamped in various places, most
often in Afghanistan, where even the Taliban have found him to be a
difficult guest. But he did not represent them or any other state, not even
a rogue regime.
Bin Laden is not, however, a complete anomaly. He symbolizes a vari-
ety of movements of religious activism that despise the symbols of secular
power in a global age, and he is a significant authority figure within a
transnational network that encompasses a certain segment of these dis-
gruntled activists. In America’s anguish after the savage aerial assaults on
the World Trade Center and the Pentagon on 11 September 2001, a criti-
cal question was how to retaliate: who or what should be attacked? Clearly
bin Laden was implicated, as he was in the previous assault on the World
Trade Center in 1993 and the bombing of American embassies in Africa
in 1998, but an appropriate response to these attacks was the subject of
a great deal of debate both within and outside American diplomatic cir-
cles. In attempting to defeat bin Laden, no one in the US administration
was under the illusion that they could defeat terrorism everywhere, nor
banish all of bin Laden’s own brand of Islamic extremism. Though the
United States wanted to punish those states that harbored terrorists, its
policy-makers were keenly aware that they were confronting a new kind
of enemy: one that was not a nation-state but an emerging transnational
force.
The maddening thing about this new enemy was that it could not easily
be located: it did not operate under a single command. For one thing,
the religious activists who targeted the United States represented different
strands of religion – various branches within the Hindu, Sikh, Buddhist,
Christian, Jewish, and Muslim faiths – and their goals are diverse. Some
aim to create a specific religious state. Others, like bin Laden, have no
interest in establishing a single alternative government, but operate on a
141
142 Mark Juergensmeyer
broader, transnational scale. They oppose what they believe to be sinister

forces at work in an American-led transnational economy, one allied with
the satellite transmission of secular popular culture.
The spectacular assault on the twin towers of the World Trade Center
and the Pentagon, therefore, was the work of guerilla antiglobalists. These
targets were symbols of globalization as well as of American strength.
The paradox, however, is that to accomplish this assault they had to
create their own transnational network. They formed a kind of shadow
alternative globalism of their own.
What both religious nationalism and guerilla antiglobalism have in
common is their reliance on bases of authority that in secular societies are
not perceived as public. These new movements of transnational private
authority, such as bin Laden’s al Qaeda network, are based on pillars of
power that are in fact quite old: religion and extra-legal violence. Indeed,
the two are related. Religious ideology provides ethical justifications for
violence, thereby providing a moral base for assaulting what Max Weber
described as essential for the public authority of the state – a monopoly
on the moral sanction for killing. At the same time, violence – especially
violence performed in unpredictable and frightening acts of terrorism –
empowers religion. In the wake of the World Trade Center assault, bin
Laden basked in the stature suddenly attributed to him as America’s
greatest enemy. Acts of violence have given religious activists a credibility
they otherwise would not have had.
Terrorism and religion

Around the world religious terrorism at the turn of the twenty-first cen-
tury became a way of life. The French dealt with subway bombs planted
by Algerian Islamic activists; the British with exploding trucks and buses
ignited by groups on both sides in the dispute in Northern Ireland; the
Japanese with nerve gas placed in Tokyo subways by members of a Hindu–
Buddhist sect. In India, residents of Delhi experienced car bombings by
both Sikh and Kashmiri Muslim separatists; in Sri Lanka whole sections
of the city of Colombo were destroyed both by Tamil Hindu and Sinhalese
Buddhist militants; Egyptians lived with militant Islamic attacks in coffee-
houses and on river boats; Algerians lost whole villages to savage attacks
perpetrated allegedly by supporters of the Islamic Salvation Front; and
Israelis and Palestinians confronted the deadly deeds of extremists from
both the Jewish and Muslim sides.
Religious violence has appeared in virtually every part of the world, and
in association with every major religious tradition. In the United States
most acts of terrorism have been related to Christian militia and racist
The global dimensions of religious terrorism 143
religious movements: the 1999 attacks on a Jewish day-care center in Los

Angeles and ethnic assaults in Illinois and Indiana, abortion clinic bomb-
ings in Alabama and Georgia in 1997, the bomb blast at the Olympics
in Atlanta in 1996, and the tragic destruction of the federal building at
Oklahoma City in 1995. These incidents, the 1993 assault on the World
Trade Center, and the spectacular attacks on 11 September 2001 have
brought Americans into the same uneasy location occupied by many in
the rest of the world: confronting religious violence as a political reality.
But what is the political point of such violent demonstrations of power?
To search for answers to this and other questions relating to the emer-
gence of religious terrorism at this moment of history, I have gone to
the sources. In a series of case studies, including Hamas suicide bomb-
ings, Jewish militancy in Israel, the Tokyo subway nerve gas attack, and
abortion clinic bombings in the United States, I interviewed a number of
religious activists and their supporters.1 The point was to try to penetrate
into their view of the world, and to look for commonalities in the thinking
of violent religious activists across cultural boundaries.
One of these conversations was with Mahmud Abouhalima, convicted
for his role in the 1993 bombing of the World Trade Center. When I
talked with him he was serving a life sentence at the Federal Peniten-
tiary at Lompoc, California. He was open to discussing a wide range of
topics regarding the relationship between religion and politics but, since
he was hoping to appeal his conviction, he was wary about getting into
the specifics of his own case. He did, however, discuss the bombing of
the Oklahoma City federal building and the trials of Terry Nichols and
Timothy McVeigh. In trying to help me understand why someone would
choose a government building – and hundreds of innocent workers and
bystanders who happened to be at the wrong place at the wrong time –
Abouhalima told me that it was done “for a very, very specific reason.”
Abouhalima added that “they wanted to reach the government with the
message that we are not tolerating the way that you are dealing with our
citizens.”2 It was a message, he said, that normal life was intolerable,
and that someone other than the government had the power to act in a
dramatic public way.
Was the bombing an act of terrorism, I asked him? Abouhalima thought
for a moment, then explained that the whole concept was “messed up.”
The term seemed to be used only for incidents of violence that people
didn’t like or, rather, Abouhalima explained, for incidents that the me-
dia have labeled terrorist. “What about the United States government?,”
Abouhalima asked me. “How do they justify their acts of bombings, of
killing innocent people, directly or indirectly, openly or secretly? They’re
killing people everywhere in the world: before, today, and tomorrow.”
“How do you define that?,” he asked. Then he described what he re-

garded as America’s terrorist attitude toward the world. According to
Abouhalima, the United States tries to “terrorize nations,” to “obliterate
their power,” and to tell them that they “are nothing” and that they “have
to follow” America’s lead. Abouhalima implied that any form of interna-
tional political or economic control was a form of terrorism. With these
assertions Abouhalima indicated that he did not regard US power as le-
gitimate. It is, in his mind, non-authoritative. He sought to challenge US
authority transnationally.
Abouhalima also gave specific examples of where he felt the United
States had used its power to kill people indiscriminately. “In Japan, for in-
stance,” Abouhalima said, referring to the atomic bomb blasts, “through
the bombs . . . that killed more than 200,000 people.” Perhaps it was just
a coincidence, but the number that Abouhalima cited as having been
killed in Hiroshima and Nagasaki was exactly the number that is esti-
mated would have been killed in the 2001 World Trade Center collapse if
both towers had toppled immediately and fallen into adjacent buildings
rather than imploded into themselves.
Was the Oklahoma City blast a terrorist response to the government’s
terrorism? “That’s what I’m saying,” Abouhalima replied. “If they be-
lieve, if these guys, whoever they are, did whatever bombing they say they
did in Oklahoma City, if they believe that the government unjustifiably
killed the people in Waco, then they have their own way to respond.”
“They absolutely have their own way to respond,” Abouhalima added for
emphasis, indicating that the Oklahoma City bombing “response” was
morally justified. “Yet,” I said, in an effort to put the event in context,
“it killed a lot of innocent people, and ultimately it did not seem to change
anything.”
“But it’s as I said,” Abouhalima responded, “at least the government got
the message.” Moreover, Abouhalima told me, the only thing that humans
can do in response to great injustice is to send a message. Stressing the
point that all human efforts are futile, and that those who bomb buildings
should not expect any immediate, tangible change in the government’s
policies as a result, Abouhalima said that real change – effective change –
“is not in our hands,” only “in God’s hands.”
This led to a general discussion about what he regarded as the natu-
ral connection between Islam and political order. Abouhalima said this
relationship had been weakened by modern leaders of Islamic countries,
such as those in his native Egypt, as a result of the influence of the West in
general and the United States in particular. The president of Egypt, for
example, was not really Muslim, Abouhalima implied, since he “watered
down” Islamic law. Leaders such as President Hosni Mubarak “said yes”
to Islamic law and principles, Abouhalima explained, but then turned

around and “said yes” to secular ideas as well, especially regarding such
matters as family law, education, and financial institutions (Muslim law
prohibits usury).3 He offered these examples of the deceitful character
of many contemporary politicians: they pretended to be Muslim, but in
practice followed secular – implicitly Western – codes of conduct.
Anti-America, anti-globalization
The enemy, in Abouhalima’s view, was a kind of shadowy force of sec-
ularism out to destroy Islam. He and his colleagues, such as Osama bin
Laden, thought that the United States was not only the prime example
of anti-religion but also its chief supporter. Long before the bombing
of the World Trade Center, Abouhalima’s spiritual leader, Sheik Omar
Abdul Rahman, expressed his disdain over America’s role in propping up
the Mubarak regime in Egypt. “America is behind all these un-Islamic
governments,” the sheik explained, arguing that the purpose of American
political and economic support was “to keep them strong” and to try to
“defeat the Islamic movements.”4 The Ayatollah Khomeini saw the shah
and the American government linked together as evil twins: America was
tarred by its association with the shah, and the shah, in turn, was cor-
rupted by being a “companion” of “satanic forces” – i.e., America.5 When
Khomeini prayed to his “noble God for protection from the evil of every
wicked traitor” and asked Him to “destroy the enemies,” the primary
traitor he had in mind was the shah, and the main enemy America.6
During a lengthy speech given in the courtroom at the end of the
trial that convicted him of conspiracy in the 1993 bombing of the World
Trade Center, Sheik Omar Abdul Rahman predicted that a “revenge-
ful” God would “scratch” America from the face of the earth.7 He was
not alone, however, in his strident anti-Americanism. According to the
RAND Chronicle of International Terrorism, each year since 1968 the
United States has headed the list of countries whose citizens and property
were most frequently attacked.8 The US State Department’s counter-
terrorism unit reported that, during the 1990s, 40 percent of all acts of
terrorism worldwide were against American citizens and facilities.9
One of the world’s best-known critics of America, Osama bin Laden,
who was implicated not only in the 11 September 2001 attacks in New
York City and Washington, D.C., but also in the attack on the USS Cole
in Yemen in 1999, and in the bombing of American embassies in Kenya
and Tanzania in 1998, explained in an interview in 1997 that America de-
served to be targeted because it was “the biggest terrorist in the world.”10
It was an insult returned to bin Laden after the embassy bombings when
US National Security Advisor Samuel Berger labeled bin Laden “the

most dangerous non-state terrorist in the world.”11 President George W.
Bush, after the 11 September 2001 attacks, dubbed him “evil incarnate.”
The reason bin Laden gave for targeting America was its list of “crimes,”
which included “occupying the lands of Islam in the holiest of places,
the Arabian Peninsula, plundering its riches, dictating to its rulers, hu-
miliating its people, terrorizing its neighbors, and turning its bases in
the peninsula into a spearhead through which to fight the neighboring
Muslim peoples.”12 In response to what bin Laden regarded as a decla-
ration of war on Muslims by America, he issued a fatwa calling on “every
Muslim” as “an individual duty” to join him in what he felt was a righ-
teous war “to kill the Americans and their allies.” Their obligation was
not only “to kill the Americans” but also to “plunder their money wher-
ever and whenever they find it.” He sealed his fatwa with the reassurance
that “this is in accordance with the words of Almighty God,” and that
“every Muslim who believes in God and wishes to be rewarded” should
“comply with God’s order.”13 In these statements bin Laden was drawing
upon what he regarded as the transcendent moral authority of Islam and
his own convictions about God’s will to justify his attack on the public
authority of the most powerful Western secular state and its agents. In bin
Laden’s reasoning, a citizen of such a state is de facto an agent of this state.
It is not difficult to discern in these assertions an explicit appeal to
the moral authority of the transcendent. Bin Laden claims, in essence, to
know the mind of God, the ultimate moral authority, and to argue that
this moral authority not only opposes America and its secular, Western
popular and political culture, but commands Muslims to kill Americans
and their allies, and plunder their property, wherever they are found.
The authority of the secular state is not simply challenged by bin Laden’s
ideas and actions. It is so thoroughly obliterated by a transcendent moral
authority that the agency on part of the secular Western state implied,
somehow, by citizenship within it is judged by the moral authority of the
transcendent to be punishable by death.
According to bin Laden’s line of reasoning, even moderate Muslim
leaders in Arab nations are manipulated by the United States in what
amounts to a virtually global conspiracy to assert an American control –
one that is perceived as having cultural and economic dimensions as well
as military ones. The cultural argument is persuasive in a world where,
increasingly, villagers in remote corners of the globe have access to MTV,
Hollywood movies, and the internet. They are assaulted with images and
values that are both secular and American. In Israel both conservative
Jewish rabbis and Muslim mullahs have agreed that the United States
was the “capital of the devil.”14 In a similar vein, Mahmud Abouhalima
told me that he was bitter that Islam did not have influence over the
global media the way that secular America did. America, he believed,
was using its power of information to promote the immoral values of
secular society.15
When Abouhalima linked America’s control of the media with its eco-
nomic power – thought to be in Jewish hands – he was echoing a sentiment
earlier articulated by the Ayatollah Khomeini. When he identified the
“satanic” forces that were out to destroy Islam, he included not only
Israelis but also “more satanic” Westerners: corporate leaders with “no
religious belief” who saw Islam as “the major obstacle in the path of their
materialistic ambitions and the chief threat to their political power.”16 The
ayatollah went on to claim that “all the problems of Iran” were due to the
treachery of “foreign colonialists.”17 On another occasion, the ayatollah
blended political, personal, and spiritual issues together in generalizing
about the cosmic foe – Western colonialism – and about “the black and
dreadful future” which “the agents of colonialism, may God Almighty
abandon them all,” have in mind for Islam and the Muslim people.18
What the ayatollah was thinking of when he prophesized a “black and
dreadful future” for Islam was the global domination of American econ-
omy and culture. This fear of globalization is linked with the fear of
America as a dominant military, economic, and cultural force. These ap-
prehensions about globalization have been felt even within certain right-
wing quarters of the United States where militias have been convinced
that the “new world order” proclaimed by President George Bush was
more than a mood of global cooperation: it was a conspiratorial plot to
control the world. Accepting this paranoid vision of American leaders’
global designs, the Aum Shinrikyo master, Shoko Asahara, linked the
United States Army with the Japanese government, Freemasons, and
Jews in the image of a global conspiratorial band.
Conspiracy theories aside, there is a certain amount of truth to the no-
tion that globalization and American dominance are related. US culture
and economy have influenced societies around the world in ways that
have caused concern to protectors of local societies. The vast financial
and media networks of American-backed corporations and information
systems have affected the whole of the globe. There has indeed been a
great conflict between secular and religious life throughout the world, and
America does inevitably support the secular side of the fight. Financial
aid provided to leaders such as Egypt’s Hosni Mubarak has shored up the
political power of politicians opposed to religious nationalism. Moreover,
after the fall of the Soviet Union, the United States has been virtually the
only coherent military power in the world. Hence it has been easy for it
to be blamed when people have felt that their lives were going askew or
were being controlled by forces that they could not easily see. The ex-
treme form of this anti-Americanism is satanization: imagining America
as a demonic entity. This gives its critics the license to strike American
people and property as if they were cosmic foes.
New religious nationalism

By describing America as a great foe, religious activists like Osama bin
Laden have implicitly placed themselves on an international playing field.
Their scenario of cosmic war is designed not only to lower the United
States, but also to elevate themselves to a level of national – or even
transnational – importance. For this reason, some activist groups have
gone to some effort to make themselves credible in the eyes of their op-
ponents. Acts of violence, including the US Embassy bombings in Africa,
have been perpetrated in part in order to fulfill threats made against their
enemies. The Kashmiri rebels who killed their American and European
hostages were said to have found themselves in a dilemma: not neces-
sarily wanting to murder the young men, but feeling that they had an
obligation to be true to their word when they threatened to kill them if
their demands were not met.
Although it may appear as if these acts were meant as signs of respect
to their opponents, they also showed something else: that the movements
acted as if they were their opponent’s equals. Kashmiri rebels thought
themselves to be as important as the Indian government; Osama bin
Laden’s network imagined itself to be equal to the greatest superpower
on earth. In a display of what René Girard has described as mimesis, they
were not only imitating their rivals, but also showing their superiority in
terms that they believed that their rivals would understand.19 In doing
so, they make an implicit claim to represent a form of authority that
is morally superior to, and that competes with, the public authority of
the secular Western state. Many activists used their courtroom trials as
arenas to get across the notion that through their acts they were sparring
with the government and taunting it by accusing it of abandoning the
very values it professed. Timothy McVeigh, for example, cited Justice
Brandeis in implying that the US government had set a bad example.20
Defendants in the trials for the 1993 World Trade Center attack called
the US Department of Justice the department of “injustice,” and Paul
Hill, during his trial in Miami for the murder of a provider of abortions
on 4 October 1994 accused the US government that was convicting him
of murder of being “unjust.”21
In the same vein, the suicide bombings perpetrated by the Hamas
movement in residential neighborhoods of Tel Aviv and Jerusalem were,
as one Hamas leader described them, “letters to Israel.” They were in-
vasions of the most domestic of their rival’s quarters, with messages in-
tended to show that “Hamas cannot be ignored,” and that “the security
for Israel’s people is zero.”22 In that sense the message was the medium
in which it was sent: the bombing provided a moment of chaos, warfare,
and victimage that the Hamas movement wanted Israeli society to ex-
perience. It made the point that war was at hand by providing a bloody
scene of battle in Israel’s own quiet neighborhoods.
What was buttressed in these acts of symbolic empowerment was not
just the credibility of the leadership of the Hamas movement and their
equality with government officials, but also the legitimacy of religious
social order as an ideology of nationalism and as an alternative source
of authority. Through the currency of violence they were drawing atten-
tion to what they thought was significant and true about the social arena
around them. In the language of Bourdieu, they were creating a perverse
“habitus,” a dark world of social reality, and forcing everyone – Israelis
and Palestinians alike – to take stock of their perception of the world.23
Their acts of terror were aimed at displaying power that not only elevated
them personally, but also forwarded the sociopolitical agenda of their
groups. The very act of performing violence in public is a political act:
it announces that the power of the group is equal or superior to that of
the state. In most cases this is exactly the message that the group wants
to convey. These are clearly authority claims, assertions regarding the le-
gitimacy of a social order that is based upon a notion of moral truth that
these actors hold.
Thus at the same time that acts of religious violence announce that
their religious authority is in competition with that of the secular order,
they also highlight chinks in the armor of the secular state. They explicitly
attack the claim of the state to provide what John Herz has called a “hard
shell of territoriality” to protect its citizens. To the extent that these actors
demonstrate the inability of the secular state to provide this protection,
they implicitly delegitimate the state and diminish its authority.
In Israel, for instance, the Jewish right has long accused the secular
government of using its devotion to democracy as an excuse for not fully
embracing the idea that Israel is a Jewish religious entity rather than a
secular state. Years before his attack on innocent Muslims at the Shrine of
the Patriarchs in Hebron, Dr. Baruch Goldstein, in a letter to the editor of
the New York Times, wrote that “Israelis will soon have to choose between
a Jewish state and a democratic one.”24 Goldstein’s massacre, I was told
by one of his followers, displayed how serious he was about that choice.
The supporter went on to tell me that now “Jews will have to learn to
worship in a national way.”25 One of Goldstein’s colleagues, Yoel Lerner,
agreed with this position, telling me that in his opinion Israel should not
be a democracy but a “Tohracracy” – a society based on the principle of
Jewish law.26
This idea of a nation based on religious law was on the minds of
American religious activists as well. Several associated with the ideology
of Christian Identity advocated the creation of a Christian Republic.27
White supremacists from throughout the United States and Canada met
in Idaho allegedly to plot the forcible overthrow of the federal govern-
ment and to create a separate Aryan nation within the United States. A
government indictment based on information gleaned from this meeting
stated that they planned to “carry out assassinations of federal officials,
politicians, and Jews, as well as bombings and polluting of municipal
water supplies.”28
The establishment of a rule based on religious law has been the pri-
mary aim of many Muslim groups. Members of Hamas regarded this
as the main difference between their organization and the secular ideol-
ogy of Fateh and other groups associated with Yasir Arafat’s Palestinian
Authority. A similar argument was made by activists associated with
Egyptian groups. Mahmud Abouhalima told me that President Hosni
Mubarak could not be a true Muslim because he did not make shari’a –
Islamic law – the law of the land, and that their movement’s goal was to
purify Arab nations.29 A cleric in Cairo’s conservative Al-Azhar theolog-
ical school told me he resented his government’s preference for Western
law. “Why should we obey Western laws when Muslim laws are better?,”
he asked me.30 It was this position that was assumed by many Muslim
activists: that Western political institutions and the ideology on which
they were based should be banished from their territories. They wanted
to rebuild their societies on Islamic foundations.
In some cases activist groups carried this critique to an extreme. They
not only rejected secular political authority but also created alternatives to
it. Aum Shinrikyo, for instance, designated the leaders in its organization
with government administrative titles such as minister of defense, minister
of intelligence, minister of internal affairs, and minister of science and
technology. The idea was not only to show that their organization could
do government’s job, but also to prepare the movement for indeed doing
that job after the arrival of the global catastrophe predicted by Shoko
Asahara. When that dark day came, the government of Aum Shinrikyo
would be the only entity remaining to administer civil order.
In India, during the height of the Sikh rebellion in the 1980s, militants
were treated as if they possessed an authority rivaling that of police and
other government officials. Villagers in terrorist zones around the Punjab
cities of Batala and Tarn Taran were unwilling to report violent incidents
to officials, and radical youth set up their own courts and governmental
offices. “Politics can be beautiful,” I was told by a former head priest
of Sikhism’s central shrine.31 “But it must be the right kind of politics.”
By this he meant a politics fused with religion, where “religion domi-
nated politics,” rather than the other way around.32 When the country of
Khalistan was created and Sikh rule was established, one of the leaders
of the movement told me, it would be a rule of law that would bring
justice to all, not just Sikhs, in a regime that lauded the tenets of the
Sikh scriptures, the Guru Granth Sahib, as supreme.33 Exactly how this
differed from the current form of political organization in India remained
obscure. It was clear, however, that this new Sikh authority would be a
form of public authority, albeit public authority with a “divine” source
and sanction. Thus the claim, and goal, is an alternative conception of a
moral public order.
One of the reasons why these activists wanted to create religious nations
was to restore the ideological and organizational dominance of religion –
a role that religion enjoyed before the Enlightenment concept of secular
nationalism took hold around the world. By its nature, the secular state
has been opposed to the idea that religion should have a role in public life.
From the time that modern secular nationalism emerged in the eighteenth
century as a product of the European Enlightenment’s political values it
did so with a distinctly anti-religious, or at least anti-clerical, posture.
The ideas of John Locke about the origins of a civil community, and
the social contract theories of Jean Jacques Rousseau required very little
commitment to religious belief. Although they allowed for a divine order
that made the rights of humans possible, their ideas had the effect of
taking religion – at least institutional religion – out of public life.
At the time, religious “enemies of the Enlightenment” – as the his-
torian, Darrin McMahon, described them – protested religion’s public
demise.34 But their views were submerged in a wave of approval for a new
view of social order in which secular nationalism was thought to be vir-
tually a natural law, universally applicable and morally right. The result
of religion’s devaluation has been “a general crisis of religious belief,” as
Pierre Bourdieu has put it.35 This causes a problem not just for believers
but for society as a whole, for it has undercut the public’s ability to rely
on public symbols. Bourdieu describes this as “the collapse of a world
of representations” and “the disintegration of an entire universe of social
relations.”36
In countering this disintegration, resurgent religious activists have pro-
claimed the death of secularism and reasserted the primacy of religious
values in the public sphere. They have experienced what I once described
as a “loss of faith” in secular politics.37 They have dismissed the efforts of
secular culture and its forms of nationalism to replace religion. They have
challenged the notion that secular society and the modern nation-state
are able to provide the moral fiber that unites national communities, or
give it the ideological strength to sustain states buffeted by ethical, eco-
nomic, and military failures. Their message has been easy to believe, and
has been widely received because the failures of the secular state have
been so real.
Acts of religious terrorism, therefore, have been more than hollow ges-
tures. The very act of killing on behalf of a moral code is a political
statement. Such acts break the state’s monopoly on morally sanctioned
killing. By taking the right to take life into their own hands, the perpe-
trators of religious violence make a daring claim of power on behalf of
the powerless, a basis of legitimacy for public order other than that upon
which the secular state relies. In doing so, they demonstrate to everyone
how fragile public order actually is, and how fickle can be the populace’s
assent to the moral authority of the secular national public order.
Yet after over a decade of religious violence, the outlines of most at-
tempts at asserting religious nationalism are still quite sketchy. Curiously,
the goals are the most obscure among groups that are the most violent. In
fact, no religious regime has ever been established through the means of
terrorism: not in Afghanistan, Sudan, or Iran; not when Muslim activists
were briefly in control in Turkey and Tajikistan; and not when they almost
came to power in Algeria. These religious regimes rode into power on the
vehicles of peaceful democratic elections or through well-organized mili-
tary takeovers. It was not through the sporadic and extreme performances
of power that characterize terrorist acts.
In fact, despite their bravado, groups associated with terrorism have
largely shied from politics. They have eschewed elections. When given
the opportunity to run for office they have rejected it, as Hamas did in
Palestine in 1996 and radical Sikhs did in Punjab in 1992. Or if they did
attempt to win at the polls, as Aum Shinrikyo did in 1990, they failed
miserably. Nor have they attempted to develop effective fighting forces
other than those needed for a hit-and-run style of terrorist bombing. The
al Qaeda network of Osama bin Laden, for example, has no state, no
political ideology, no army, and no military strategy.
While their claims that their goals are sanctioned by the moral author-
ity of the transcendent have been quite clear, the images of political order
that they yearned to create have been fuzzy – perhaps deliberately so.
Sometimes they have been democratic, sometimes socialist, sometimes
a sort of religious oligarchy. Although it was clear who the religious ac-
tivists hated, nowhere in their program was a design for a political entity –
Islamic or otherwise – that could actually administer the results of a
victory over American and secular rule and the emergence of a religious
revolution, should they have achieved it. My conclusion is that, despite
their political potency, acts of religious terrorism are largely devices for
symbolic empowerment in wars that cannot be won and for goals that
cannot be achieved. For many, the notion of ideal political authority that
fuels their imagination is not a national one, but one that is transnational
and utopian: a righteous global political order, one slightly beyond the
frame for mortal history.
Transnational networks
Islamic movements especially have held the illusion of waging a global
struggle. The assemblage of al Qaeda activists coordinated by Osama bin
Laden is profoundly multinational in membership: Egyptian, Palestinian,
Jordanian, Saudi Arabian, Afghan, Algerian, Sudanese, Yemeni, and
Pakistani. Their groups have been transnational in part because of the
multicultural background of expatriate Muslims who have congregated
in their movements. Similarly, the Hamas leader, Abdul Aziz Rantisi,
told me that what distinguished his organization from Yasir Arafat’s was
that the Palestinian Authority was waging a “national struggle” whereas
Hamas was “transnational.”38 It is supported by Muslims everywhere.
Compatriots from different parts of the world also make up the militant
backing of movements such as Sinhalese and Tamil rebels in Sri Lanka
and Sikh separatists in India. Although expatriate Tamils and Sikhs may
find themselves on the periphery of society in Britain, Canada, the United
States, and the many other parts of the world to which they migrated,
militant movements provided them with the opportunity to display their
commitment and prove their importance to the community in a powerful
way. This phenomenon has been called “e-mail ethnicities”: transna-
tional networks of people tied together culturally despite the diversities
of their places of residence and the limitations of national borders.39
These ethnicities, united by web sites and the internet, have been not
only extensions of traditional societies whose adherents and cultures are
dispersed around the world, but harbingers of global cultures as well.40
Among these expatriate groups have been some notoriously politically
active ones.
Osama bin Laden and his lieutenants have trooped from Saudi Arabia
to Sudan to Afghanistan. Sheik Omar Abdul Rahman, for instance, lived
variously in Egypt, Sudan, and New Jersey, and other members of his
network originated from diverse locations in the Muslim world. Among
them was Mohammed Salameh, whose story was paradigmatic of the re-
ligious radical expatriate experience. Salameh lived virtually from hand
to mouth, sharing addresses with several other people in Jersey City, in

a busy working-class neighborhood that teemed with new immigrants
from Haiti and the Middle East. The setting was in some ways not unlike
the social situation and economic conditions in the crowded Palestinian
refugee camps on the West Bank and in Jordan where Salameh was born
and raised, and from which he departed in 1987 for America in order
to improve his educational and financial situation. In the United States,
where his limited English continued to be a social barrier, Salameh as-
sociated primarily with other Arabs. His life became focused around the
local mosque, located above a Chinese restaurant, led by the charismatic
Sheik Omar Abdul Rahman. The trajectory of his life led ultimately to
his participation in the 1993 bombing of the World Trade Center, when
the world came to know him as the terrorist who foolishly returned to the
Ryder rental agency to retrieve his US$ 200 deposit for the van he had
rented and had subsequently blown up, and was immediately caught by
waiting agents of the FBI.41
The socially uprooted and dislocated Salameh found a new identity in
a transnational community of radical Muslims. Appropriately, perhaps,
they identified their miseries as global as well: the emerging transna-
tional economy and the global culture seemingly promoted by the United
States. It was a perception shared especially by those who were geograph-
ically dislocated, but their attitude of suspicion and cynicism was one that
was widely experienced throughout the post-Cold War world. Even the
United States saw a remarkable degree of disaffection with its political
leaders and witnessed the rise of right-wing religious movements that
fed on the public’s perception of the inherent immorality of government.
But the global shifts that have given rise to antimodernist movements
have also affected less developed nations. Religious activists such as the
Algerian leaders of the Islamic Salvation Front, the Ayatollah Khomeini
in Iran, Sheik Ahmed Yassin in Palestine, Sayyid Qutb and his disciple,
Sheik Omar Abdul Rahman in Egypt, L. K. Advani in India, and Sant
Jarnail Singh Bhindranwale in India’s Punjab have asserted the legitimacy
of a postcolonial political identity based on traditional culture.42
In some cases these voices have been stridently nationalist; in oth-
ers they hint at transnational political solutions. The al Qaeda network
of Osama bin Laden sought no specific political goal but imagined itself
embroiled in a global war. This uncertainty about what constitutes a valid
basis for social order is on the one hand a kind of guerilla antiglobalism;
on the other hand it is a political form of postmodernism.43 In Iran it has
resulted in the rejection of a modern Western political regime and the
creation of a successful religious state. Yet, what lies beyond modernity
is not necessarily a new form of political order, be it national or religious.
In regions formerly under Soviet control, for example, the specter of the
future beyond the socialist form of modernity has been one of cultural
anarchism. The fear that there will be a spiritual as well as a political
collapse at modernity’s center has, in many areas of the world, led to
terror. Hence the rise of religious violence across geographic boundaries
has been a sigh of distress. In the horrific destruction of the World Trade
Center and other assaults on modern secular public life, it is a sign of
vicious desperation. For at least some who perpetrate these actions, how-
ever, it has also been a tragic longing: a cry for social coherence and moral
community in a time of global change.

1 Mark Juergensmeyer, Terror in the Mind of God: The Global Rise of
Religious Violence, (Berkeley: University of California Press, 2000). This essay
includes revised excerpts from this book.
2 Interview with Mahmud Abouhalima, Federal Penitentiary, Lompoc,
California, 30 September 1997.
3 Interview with Abouhalima, 19 August 1997. The topic of the relationship
between Islam and public order was discussed in both interviews.
4 Sheik Omar Abdul Rahman, recorded on audiotape cassettes made in the
United States and quoted in Kim Murphy, “Have the Islamic Militants Turned
to a New Battlefront in the US?,” Los Angeles Times, 3 March 1993, A20.
5 Imam [Ayatollah] Khomeini, Collection of Speeches, Position Statements
(Arlington, Va.: Joint Publications Research Service, 1979), p. 24.
6 Ibid., p. 30.
7 John J. Goldman, “Defendants Given 25 Years to Life in New York Terror
Plot,” Los Angeles Times, 18 January 1996, A1.
8 RAND, “Chronicle of International Terrorism,” reported in Bruce Hoff-
man, Terrorism Targeting: Tactics, Trends, and Potentialities (Santa Monica, Cal.:
RAND Corporation Papers, 1992), p. 17.
9 State Department statistics cited by Robin Wright, “Prophetic ‘Terror 2000’
Mapped Evolving Threat,” Los Angeles Times, 9 August 1998, A16.
10 Osama bin Laden, interviewed on an ABC News report, rebroadcast on 9
August 1998.
11 Samuel Berger, quoted in Osama bin Laden, fatwa issued February 1998,
“Jihad Is an Individual Duty,” Los Angeles Times, 13 August 1998, B9.
12 Excerpts from ibid.
13 Ibid.
14 Interview with Rabbi Manachem Fruman, Tuqua settlement, West Bank,
Israel, 14 August 1995.
15 Interview with Abouhalima, 30 September 1997.
16 Khomeini, Islam and Revolution: Writings and Declarations, trans. and anno-
tated by Hamid Algar (London: Routledge and Kegan Paul, 1985), pp. 27–28.
17 Khomeini, Collection of Speeches, Position Statements, p. 3.
18 Ibid., p. 25.
19 See René Girard, Violence and the Sacred, trans. by Patrick Gregory (Balti-
more, Md.: Johns Hopkins University Press, 1977); and Girard, The Scapegoat,
trans. by Yvonne Freccero (Baltimore, Md.: Johns Hopkins University Press,
1986); Walter Burkhert, René Girard, and Jonathan Z. Smith, Violent Origins:
Ritual Killing and Cultural Formation, edited by Robert G. Hamerton-Kelly
(Stanford: Stanford University Press, 1987).
20 Timothy McVeigh, quoted in Richard A. Serrano, “McVeigh Speaks Out,
Receives Death Sentence,” Los Angeles Times, 15 August 1997, A1.
21 Paul Hill, quoted in Mike Clary, “Suspect in Abortion Slayings Acts as Own
Attorney at Trial,” Los Angeles Times, 5 October 1994, A5.
22 Interview with Imad Faluji, journalist and member of the political wing of
Hamas, in Gaza, 19 August 1995.
23 Pierre Bourdieu and Loic J. D. Wacquant, An Invitation to Reflexive Sociology
(Chicago: University of Chicago Press, 1992), p. 131.
24 Dr. Baruch Goldstein, Letter to the Editor, New York Times, 30 June 1981.
25 Interview with Yochay Ron, Kiryat Arba, Israel, 18 August 1995.
26 Interview with Yoel Lerner, director of the Sannhedrin Institute,
Jerusalem, 17 August 1995.
27 Leonard Zeskind, The “Christian Identity” Movement: Analyzing Its Theological
Rationalization for Racist and Anti-Semitic Violence (New York: Division of
Church and Society of the National Council of the Churches of Christ in
the USA, 1986), pp. 35–42.
28 Reported in Arkansas Gazette (Little Rock, Ark.), 27 April 1987, quoted in
Bruce Hoffman, “Holy Terror”: The Implications of Terrorism Motivated by a
Religious Imperative (Santa Monica, Cal.: RAND Corporation Papers, 1993),
p. 8.
29 Interview with Abouhalima, 19 August 1997.
30 Interview with Dr. Muhammad Ibraheem el-Geyoushi, dean of the Faculty
of Dawah, Al-Azhar University, Cairo, 30 May 1990.
31 Interview with Darshan Singh Ragi, former Jatedar, Akal Takhat, at Bhai Vir
Singh Sadan, New Delhi, 13 January 1991.
32 Ibid.
33 Interview with Sohan Singh, leader of the Sohan Singh faction, Khalistan
Liberation Force, Mohalli, Punjab, 3 August 1996.
34 Darrin McMahon, Enemies of the Enlightenment: The French Counter-
Enlightenment and the Making of Modernity (New York: Oxford University
Press, 2001).
35 Pierre Bourdieu, Language and Symbolic Power (Cambridge, Mass.: Harvard
University Press, 1991), p. 116.
36 Ibid.
37 Mark Juergensmeyer, The New Cold War? Religious Nationalism Confronts the
Secular State (Berkeley: University of California Press, 1993), p. 11.
38 Interview with Abdul Aziz Rantisi, cofounder and political leader of Hamas,
in Khan Yunis, Gaza, 1 March 1998.
39 I do not know who coined the term “e-mail ethnicities.” I first heard it used by
the anthropologist Benedict Anderson, in comments made at a conference on
nationalism held by the Center for German and European Studies, University
of California, Berkeley, 15 March 1992.
40 I discuss further this notion of the global diaspora of religious cultures in my

essay, “Thinking Globally About Religion,” in Juergensmeyer (ed.), Global
Religion: A Handbook (New York: Oxford University Press, forthcoming).
41 The story of Salameh’s capture is told in Jim Dwyer, David Kocien-
iewski, Deidre Murphy, and Peg Tyre, Two Seconds Under the Bomb. Terror
Comes to America: The Conspiracy Behind the World Trade Center Bombing (New
York: Crown Publishers, 1994), pp. 89–101.
42 For a forceful statement of this thesis, see Partha Chatterjee, The Nation and
Its Fragments: Colonial and Postcolonial Histories (Princeton, N.J.: Princeton
43 For the distinction between postmodernity as a social phenomenon and as a
mode of analysis, see David Lyon, Postmodernity (Minneapolis: University of
Minnesota Press, 1994).
Part IV
Illicit authority: mafias and mercenaries

8 Transnational organized crime
and the state
Phil Williams
One of the most important characteristics of global politics at the begin-

ning of the twenty-first century is the multiplicity of actors. An environ-
ment that, for a long time, was regarded as the domain of states is now
seen by most commentators as much more complex: states share the stage
with a wide variety of non-state or “sovereignty-free actors,” ranging from
transnational and multinational companies with global markets to non-
governmental organizations concerned with good causes such as peace
and disarmament, preventing further environmental degradation, famine
and disaster relief, poverty alleviation, and the like.1 There is also a new
breed of criminal actor – transnational criminal organizations – that is
interested not in the pursuit of good, but in the pursuit of wealth, and the
use of criminal means to obtain it. Transnational criminal organizations
are not new; they have been around as long as there has been a demand for
the smuggling of goods across borders. The difference today, however,
is that there are more of them, they are more varied, and they possess
greater wealth and power than ever before. Furthermore, whereas most
states in the past seemed to have the capacity to keep organized crime un-
der control, this is no longer so obviously the case. Indeed, transnational
organized crime has emerged as a major challenger to individual states –
especially those in transition and those that are still developing econom-
ically – and to international governance. Against this background, this
chapter seeks to do several things:
to locate the relationship between organized crime and states in
the broader context over the debate over the future of the state.
to understand states from the perspective of transnational crim-
inal organizations, which view states in terms of obstacles and
impediments on the one hand and opportunities on the other.
Transnational criminal organizations are concerned with both
reducing or eliminating the obstacles and maximizing the op-
portunities. They do this in part through the use of corruption,
which is the single most important instrument of organized
161
162 Phil Williams
crime and one of the reasons organized crime during the 1990s
aroused unprecedented concerns.
to highlight the vulnerabilities of weak states and states-in-
transition to transnational organized crime, which finds such
states congenial incubators and targets. The analysis develops
the notion of capacity gaps and functional holes, and high-
lights ways in which criminal organizations exploit and fill these
holes.
In the final section, the chapter speculates about the future of the re-
lationship between states and transnational criminal organizations, sug-
gesting that these organizations will continue to pose immense problems
for many states and that one of the big divides in global politics will be
between those states that tacitly or explicitly support or engage in orga-
nized crime and those that oppose and confront transnational criminal
organizations.
The key issues and concepts
The meaning and future of the state

Some observers suggest that the period in which global politics has been
dominated by the nation-state – a period ushered in by the Treaty of
Westphalia in 1648 – has come to an end and that the Westphalian state
is undergoing a long-term secular decline that will be impossible to re-
verse. Jessica Mathews, for example, has contended that the world is
witnessing:
a novel redistribution of power among states, markets, and civil society. National
governments are not merely losing autonomy in a globalizing economy, they are
this time sharing powers, including political, social, and security roles that lie
at the core of national sovereignty – with businesses, with international organi-
zations, and with a multitude of . . . non-governmental organizations, or NGOs.
The steady accumulation of power in the hands of states that began 350 years ago
with the Peace of Westphalia is over, I believe, at least for a while. Increasingly,
resources and threats that matter, whether they are money, information, pollu-
tion, popular culture, circulate and shape lives and economies with little regard
for political boundaries.2
In a very similar vein, Susan Strange has talked about the retreat of the
state.3
Many observers agree that globalization is challenging the dominance
of states in international relations from above, while subnational forces
are eroding it from below. In an important variant of the globalization
argument, Saskia Sassen has contended that globalization threatens to
Transnational organized crime and the state 163
undo the intersection of sovereignty and territory not least because elec-
tronic space, for the most part, is outside territorial jurisdiction.4 For
those who see the challenge as coming from above, there is a clear con-
traction in the domain of state authority. The state simply can no longer
control many of the activities that, in the past, were within its mandate
and power to control. There are also important challenges coming from
below – from subnational groups that, for one reason or another, do not
accept state authority and legitimacy. Indeed, some states, lacking legiti-
macy, simply dissolve into civil war, while those that lack basic elements of
the capacity to govern become failed states, unable to fulfill the functions
that are normally associated with states and characterized by chaos and
disorder.
At the other extreme are those who argue that the state remains the
dominant and defining entity in world politics. The state, in this assess-
ment – which derives primarily, although not exclusively, from realist
and neorealist assumptions – is essentially robust. Although there might
be some contraction in the domain of state authority at the margin, the
state, it is argued, is still the fundamental unit in international relations.
Moreover, it is highly resilient in the face of globalization and various
other challenges. From this perspective, civil wars and ethnic conflicts
are usually about who controls the state, while transnational corpora-
tions and transnational social movements are often state-based and are
an instrument of, rather than a challenge to, state power and authority.
One of the difficulties in the debate over the future of the state is that it
is not always clear that observers are in full agreement on what constitutes
a state. Indeed, it is possible to discern four major interpretations of the
state:
the state as a sovereign territorial entity controlling the area under
its jurisdiction and who and what enters. This is also related to
the notion of state as the major actor in global politics, which
to some degree – and this is where opinions diverge sharply –
is still territorially based.
the state as a system of rules.5 The state has both authority over its
citizens and obligations toward them. The exercise of authority
and the fulfillment of the obligations are embedded in a set
of rules, norms, and laws that apply to all those within the
territorial jurisdiction of the state.
the state as a set of institutions and people who act on its behalf.
Here the notion is that the state manifests itself through people
and institutions who act as the representatives or guardians of
the state and take decisions and implement policies in the name
of the state.
164 Phil Williams
the state as a set of functions that range from state as guarantor of

order and security (through its monopoly of coercive power)
to the state as manager of economic activity and provider of
economic and social welfare.6 These functions relate to the
notion of state legitimacy, which is obtained and maintained
in large part because the state meets certain basic needs of the
citizenry.
The analysis here considers each of these notions of the state and shows
how it relates to transnational organized crime. Before exploring the vari-
ous relationships in more detail, however, it is necessary to elucidate more
fully what is meant by transnational organized crime.
The nature of transnational organized crime

Within criminology, disputes over the nature and meaning of organized
crime have spanned several decades. Out of this controversy, three ap-
proaches to the definition of organized crime have emerged: those which
embody simple lists of characteristics; those with more sophisticated lists
that identify some essential characteristics and some à la carte charac-
teristics; and those that try to capture the essence of organized crime.
The former can be found in almost any textbook on organized crime and
usually includes such characteristics as enduring association for crimi-
nal purposes, a minimum number of people (often three), some kind of
organizational structure and hierarchy, and the use of corruption and
violence. The more sophisticated list approach distinguishes between
primary characteristics, all of which have to be present, and secondary
characteristics, only some of which will be present. The third kind of
definition seeks to provide the essence of organized crime. An exam-
ple of this is Interpol’s definition, which sees organized crime in terms
of “any group having a corporate structure whose primary objective is
to obtain money through illegal activities, often surviving on fear and
corruption.”7 An alternative and neo-Clausewitzian type of definition is
to suggest that organized crime is simply the continuation of business by
other means. Transnational organized crime is, then, criminal business
that, in one way or another, crosses national borders. The border crossing
can involve the perpetrators, their illicit products, people (either illegal
migrants or women and children being trafficked illegally), their profits,
or digital signals (a virtual border crossing).
Transnational organized crime and states

Organized crime both threatens states and exploits states. In terms of
the threats to states, there are several aspects of transnational organized
crime that need to be taken into account:
organized crime structures. These embody a concentration of

illegal power in society that can significantly influence political,
economic, and social life. In some countries organized crime
is little more than a marginal problem, existing on the fringes
of society and having little impact on the way that the society
functions or is governed. In others, however, organized crime
has succeeded in embedding itself not only in the social fabric
and the economy but also in the political system. In some
cases, organized crime and the state apparatus develop a deeply
symbiotic and collusive relationship.
organized crime activities that provide the profits and that can
range from drug trafficking and arms trafficking, to extortion
and infiltration of licit business. These activities are generally
against the law in most states. The irony, of course, is that
prohibition or even regulation of some products that are in
demand increases their price and encourages the development
of criminal markets.
organized crime strategies and processes designed to manage the
risks posed by governments and law enforcement agencies.
Most transnational criminal organizations adopt some kind of
risk management strategy that is designed to protect the orga-
nization and its activities. One of its most potent risk manage-
ment tools is corruption, which is intended to neutralize the
control powers of states but can also undermine their power
and authority. Indeed, organized crime–corruption networks
can be understood as the HIV virus of the modern state, cir-
cumventing and breaking down the natural defenses of the
body politic.
It is clear from this that organized crime is a challenge to states, irre-
spective of whichever dimension or meaning is attributed to states. This is
evident in table 4, which looks at how the three major aspects of organized
crime impinge on the four dimensions of states elucidated above.
Transnational organized crime activities, for example, fundamentally
challenge the territorial sovereignty of states and, in particular, any notion
that states can determine who or what comes across their border, and
what activities are permissible in the territory under their jurisdiction.
Transnational criminal organizations typically circumvent border con-
trols and, rather than negotiating with the government for access to
legal markets (as transnational corporations do), operate clandestinely.
Insofar as there is negotiation, it occurs with domestic organized crime
groups that have readymade distribution networks for illegal goods and
services. Indeed, alliances among criminal organizations are becoming
increasingly important in allowing foreign groups to enter new domestic
166 Phil Williams
Table 4: Organized crime and the state
Aspects of Sovereign Institutions and

organized crime entity System of rules people Functions
Activities such as Smuggling Undermine and Challenge and Challenge to

various forms work with exploit justification for law and order
of trafficking illegal prohibition of resources for
power goods and social control
structure services and criminal
justice
Power Challenge Replace rule of Intimidate Extortion
manifested in state law with rule judiciary and threatens
use of violence monopoly of violence law enforcement business and
of coercive and ensure low property
power and penalties or supposedly
create no- acquittals for protected by
go zones organized crime the state
figures
Risk Operational Organized crime Corrosion of Corruption
management corruption buys immunity institutions undermines
strategies, to protect from system of such as police, good
especially trafficking rules through judiciary, and governance
corruption activities corruption of the military as and
law well as financial democratic
enforcement institutions procedures
and judiciary
markets, compensating for their weaknesses and lack of local knowledge,

and overcoming border restrictions. Ironically, although transnational
criminal organizations violate national borders as a matter of routine,
they also exploit these borders in several ways. In the first place, na-
tional borders often bring with them highly significant price differen-
tials. A kilo of cocaine, for example, increases in value approximately
sixfold once it has crossed the Mexican–United States border. Second,
organized crime uses borders defensively. During one period when
they were fighting extradition to the United States, for example, the
leaders of the Medellin and Cali cartels became major champions of
Colombian nationalism and sovereignty. Their arguments were reso-
nant with the symbolism of sovereignty and reveal that, although drug
trafficking groups and other transnational criminal organizations rep-
resent both private power and private authority, they are not averse to
appealing to more traditional state authority when the need presents
itself.
The hypocrisy of this, of course, is very striking given the routine way in
which criminal organizations violate national borders and national laws.
Indeed, in some cases, their challenge to state authority goes even further
and the state has to accept that there are “no-go zones” in which it has
no authority and little, if any, presence. Criminal activities also challenge
the system of rules that states attempt to impose. There is another deep
irony here: criminal organizations operate in criminal markets that are
particularly lucrative because they are a direct product of state policies of
prohibition and regulation of certain goods and services. The challenge to
state institutions and functions from criminal activities is more tangential
but still significant – to the extent that law enforcement institutions fail
to stem these activities and provide order and safety for citizens, then
questions about the efficacy of the state apparatus come to the fore. At
the same time, criminal activities provide a rationale for strengthening
state institutions and devoting more resources to the functions of social
control and border control.
The power of criminal organizations is a threat to the state as sovereign
entity in that the state claims a monopoly of coercive power; criminal orga-
nizations also exercise such power and use violence to remove competitors
and obstacles to their businesses. In a few cases, criminal organizations
have launched major assaults on the state, using terror tactics in an effort
to intimidate the authorities. Criminal violence is a frontal attack on the
notion of the state as a system of rules and its concomitant, the rule of law.
This violence is sometimes directed at particular state institutions such
as the judiciary or law enforcement agencies. In effect, criminal organiza-
tions seek to use what Thomas Schelling once called “the power to hurt”
to neutralize social control and criminal justice institutions that threaten
them.8 Violence and the threat of violence by criminal organizations are
also often directed against large and small businesses as part of extortion.
To the extent that this succeeds, the state has failed in one of its major
functions, securing the safety and prosperity of its citizens.
If violence is the most dramatic manifestation of the power of orga-
nized crime, the wealth that criminal organizations often have available
is another form of power – and is used as the basis for risk management
strategies by criminal organizations. The wealth of criminal organizations
is used for corruption, in ways that undermine the very foundations of
good governance. Although corruption is often treated as a condition, in
this context it has to be seen as a very powerful instrument used by crim-
inal organizations to ensure that the risks to them and to their activities
are minimized. Corruption is used to undermine border control efforts,
to ensure that organized crime, in effect, can operate outside the system
of rules that apply to other citizens, to neutralize state institutions and
168 Phil Williams
people combating organized crime, and to inhibit the proper functioning

of the criminal justice system. The targets and objectives of corruption
are examined more fully below.
If transnational criminal organizations, in some respects, pose major
challenges to the functioning of states, in other ways their activities and
behavior acknowledge the continued importance of the state. Indeed,
transnational criminal organizations in effect accept and use states in
several ways. In the first place a state – particularly one that has been
neutralized by the power of organized crime – can provide a safe haven,
i.e., protection from other states and a base from which the criminal
organizations can operate with impunity. The capacity to provide safe
havens or sanctuaries actually makes states very important to criminal
organizations. Another attraction is that states have access to all sorts of
resources that criminal organizations might want to obtain or export. In
such cases, criminal organizations will seek access to institutions and peo-
ple who formally control these resources. Indeed, from the perspective
of criminal organizations, states can be understood in terms of four cate-
gories: home, host, transshipment, and service. Home states are in some
respects the most important – they provide the location from which crim-
inal organizations operate their transnational businesses. Consequently,
a congenial, low-risk environment is critical.
This is less true of host or market states which are the destination for
many of the illegal products of criminal organizations that are shipped
across borders. Host or market states generally have lucrative markets
or other targets for their criminal activity – with the result that criminal
organizations are sometimes willing to incur a significant level of risk in
order to operate within them. Moreover, there are some things that give
transnational criminal organizations an advantage in host states, com-
pensating for the difficulties of establishing corruption networks of the
kind that are so potent in the home state. Among these are the capacity to
operate within ethnic enclaves, which provide cover and recruitment and
which are difficult for law enforcement to penetrate because of language
and cultural barriers. States that act as hosts or markets for organized
crime rarely face fundamental challenges in the way that home states do –
partly because ethnic-based criminal organizations are not rooted in local
or national power structures.
Before illegal products reach their final destination in the market states,
they generally have to pass through one or more transshipment states.
These states are located on major transit routes for certain kinds of illicit
commodities such as drugs, arms, or illegal aliens, and become the trans-
shipment states because of their access to the target (i.e., the market or
final destination for the illicit products) and the ease of transit, which is
largely a function of state capacity for interdiction.9 Such states suffer

from the violation of their sovereignty and are particularly vulnerable to
operational corruption (i.e., corruption designed to facilitate the move-
ments of illicit goods through the state).
The other kind of state, from the perspective of criminal organizations,
is what might be termed a service state. Service states generally have
particular sectors of activity – usually the financial sector – that can be
exploited by criminal organizations to move, hide, and protect the pro-
ceeds of their illegal activities. Those states which make up the offshore
banking world – a world that incorporates many Caribbean states and
European states such as Luxembourg, Austria, Monaco, Switzerland, and
Cyprus, and that extends to minuscule South Pacific jurisdictions such
as Vanuatu, Niue, and Nauru – offer bank secrecy and pose few prob-
lems for criminal organizations seeking to hide and protect their money.
The biggest challenge to the small service states is corruption, which is
used to resist any efforts to clean up their activities and develop banking
safeguards such as know-your-customer rules. The irony here – as with
the notion of home states as sanctuaries – is that transnational criminal
organizations are fully exploiting the sovereignty of some states for defen-
sive purposes even as their trafficking activities are grossly violating the
sovereignty of others.
Any analysis of the relationship between transnational criminal organi-
zations and states is complicated by the fact that some states fulfill several
roles simultaneously. Russia, for example, is a home state for as many
as 10,000 indigenous criminal organizations, yet is also a host state for
Nigerian criminal groups involved in drug trafficking and fraud, as well
as a transshipment state for drug trafficking groups from Central Asia
and a service state for Italian criminal organizations looking for safe ways
to launder the proceeds of crime. South Africa is in a similar position. In
addition to acting as home state for indigenous criminal organizations, it
also acts as host to Nigerian groups involved in drug trafficking, fraud, and
control of prostitution, Italians involved in money laundering, Chinese
networks trafficking in abalone and endangered species, and Ukrainian
and Russian groups involved in arms trafficking and the illegal diamond
trade. The critical point about both these states, however, is that they are
states-in-transition, and, as such, share certain characteristics that make
them particularly vulnerable to organized crime.
Transnational organized crime and weak states

It became increasingly clear throughout the 1980s and the 1990s that
the rise of transnational organized crime was inextricably connected with
170 Phil Williams
the weakness of many states in the international system. Yet state weak-
ness is not a new phenomenon. Nor is the link between weak states and
organized crime particularly novel. The weakness of the Italian state in
the nineteenth century facilitated the rise of the mafia in Sicily: with the
state incapable of providing protection and arbitration for business, the
mafia developed to fill the vacuum.10 Similarly, but of more recent vin-
tage, during the 1970s and 1980s, the weakness of the Colombian state
and its lack of control over territory nominally under its jurisdiction was
a major factor in explaining the rise of Colombia as the corporate head-
quarters of the South American cocaine industry. State weakness gave
Colombian drug trafficking organizations a comparative advantage over
their counterparts in Peru and Bolivia.11
Perhaps the most dramatic examples of state weakness providing ideal
conditions for the rise of criminal organizations, however, are to be found
in the states of the former Soviet Union. The collapse of the Soviet state
resulted in a major upsurge of organized crime in Russia and other for-
mer republics, providing both unprecedented opportunities for crimi-
nal organizations and incentives and pressures for citizens to engage in
criminal activities. Similarly, the political transition in South Africa has
been accompanied by the growth of indigenous criminal organizations
and the influx of groups from outside the country. Part of the reason is that
transitions are characterized by the collapse and reestablishment of state
structures; major shifts in the principles underlying economic manage-
ment; a redefinition of the principles and values on which society operates
(e.g., who is eligible for participation in political affairs); and a reorienta-
tion of relationships with the outside world, usually involving an opening
of the economy and the society. As a result, states-in-transition have cer-
tain weaknesses and vulnerabilities that are readily exploited by transna-
tional organized crime.
As well as being the result of a sudden collapse of an old regime, state
weakness can also reflect a more long-term failure to develop viable, legit-
imate, and effective state institutions. Whatever the short- or long-term
causes of weakness, however, weak states tend to share certain charac-
teristics: there is a low level of state legitimacy; border controls are weak;
rules are ineffective; the institutions and people who represent the state
put other goals above the public interest; there is little economic or social
provision for the citizenry; business is not legally regulated or protected;
social control through a fair and efficient criminal justice system is lacking;
and other typical state functions are not carried out with either efficiency
or effectiveness. Not surprisingly, these weaknesses provide a greenhouse
effect for organized crime. This section seeks to elucidate this effect. It
contends, in essence, that weak states suffer from capacity gaps, and that
Table 5: Capacity gaps, functional holes, and transnational organized crime
Capacity gaps Functional holes Implications for organized crime

Social control Ineffective criminal Organized crime operates with impunity
justice system
Social welfare Lack of provision for – Migration to illegal economy
citizens – Organized crime recruitment
– Paternalism substitute for state
Business Lack of regulatory – Organized crime as arbitrator,
regulation framework protector, and debt collector
Oversight and Lack of control and – Opportunity for extensive use
accountability transparency of corruption
– Hijacking of privatization processes
Border control Weak interdiction – Use state for transshipment of various
capability illegal products
Legitimacy Lack of authority and – Build on patron–client links and other
affiliation relationships that are more important
than loyalty to the state
Electoral norms Campaign financing – Opportunity to influence election
and patterns outcomes and cut deals with
politicians
capacity gaps lead to functional holes (i.e., a failure of the state to ful-
fill certain basic functions that are normally associated with states and
that are expected by the citizenry). Capacity gaps and functional holes
are exploited by criminal organizations in one of two ways – either by
filling them and, in effect, substituting or compensating for the state, or
by exploiting the room for maneuver that they provide. In effect, func-
tional holes provide space that can either be filled by organized crime or
in which organized crime can operate virtually unhindered. The ways in
which capacity gaps and the resulting functional holes are exploited by
criminal organizations is summarized in table 5.
Organized crime tends to develop in response to a particular combina-
tion of opportunities on the one side and pressures and incentives on the
other. Capacity gaps and functional holes feed all aspects of this equation,
offering multiple opportunities for – and few constraints on – organized
criminal activity.
One aspect of state weakness with particular relevance to the develop-
ment of organized crime has been the inadequate development of effective
criminal justice systems that are efficient, effective, fair, and equitable and
that incorporate measures specifically designed to prevent and control
various forms of racketeering and money laundering. This capacity gap
has been evident in a number of states-in-transition including Russia and
172 Phil Williams
South Africa. This is hardly surprising. As Durkheim argued, most soci-

eties have regulatory mechanisms to restrain criminal behavior through
both formal sanctions and social norms, “but when society is disturbed by
some painful crisis or by beneficent but abrupt transitions” it becomes
incapable of enforcing restraint – at least temporarily.12 The problem
is sometimes one of laws – and in particular the absence of legislation
specifically directed against organized crime – and sometimes one of re-
sources. Most states-in-transition, for example, “are faced with a plethora
of economic and political problems that they must address” and “severe
resource constraints that limit the training and equipping of effective
law enforcement organizations.”13 The resulting functional holes mean
that organized crime can operate with a high level of impunity or, at the
very least, a minimum of risk. The prospects that major organized crime
figures will be caught and incarcerated are minimal. Although rank-and-
file members of criminal enterprises might be arrested, the organizers
and leaders are often able to operate with remarkable freedom. And even
when they are arrested, they are often able to buy acquittals or remarkably
light sentences.
The legal capacity gaps are not confined to criminal law. The failure of
some states to provide adequate and appropriate regulatory frameworks
for business can have profound implications for organized crime, offering
opportunities either to fill or to exploit the resulting functional hole. In
Russia, for example, the lack of an appropriate regulatory framework for
business providing recourse for debt collection and effective and peaceful
arbitration of disputes has been a huge problem during the move toward
a free market economy. In the absence of such a framework, there is
neither protection nor contract enforcement, a condition that allows or-
ganized crime to become a surrogate for government.14 The change in
the principles on which the economy is based preceded the development
of appropriate regulatory and legal provisions and led some business-
men to turn to criminal organizations to collect outstanding debts or to
settle disputes. Recourse to these unorthodox methods had two conse-
quences: it gave criminal organizations an entrée into the business world,
thereby creating a seamless web between the licit and the illicit, and it
encouraged legitimate businesses to resort to increasingly ruthless meth-
ods against their competitors. Indeed, one result of the capacity gaps and
functional holes in Russia has been the emergence of an “iron triangle” in
which politicians and government officials, businessmen, and criminals
are bound together in complex relationships that are enormously diffi-
cult to disentangle, but clearly highly damaging to the transition and to
Russia’s reputation in the world. Collusion and even integration of the
three groups both results from and accentuates a blurring of the public
and private, of legitimate and criminal enterprises, and of money laun-

dering and capital flight.
A variant on this theme of regulatory gaps can be found in several
African states where the lack of regulations in key economic sectors, in-
cluding those involved in the extraction of minerals and other natural
resources, fuels criminal activity by leaders, by domestic and transna-
tional criminal organizations, and by rebel armies and warlords. While a
well-defined regulatory framework might not be a sufficient condition for
stopping criminal looting of state resources, it is almost certainly a neces-
sary one. Moreover, the absence of such a framework gives the problem a
self-perpetuating quality: political or territorial control of certain regions
not only yields rich rewards to criminals (or rebel groups) but also de-
prives governments of resources that could help to fuel economic growth,
infrastructure improvements, and the like. The result is a lack of resources
to reduce the capacity gap and fill the functional hole and which in turn
contributes to its continued exploitation.
Another capacity gap that is often overlooked concerns economic man-
agement and social welfare. The resulting functional hole is a lack of pro-
vision for the welfare of the citizens. While other dimensions of weakness
offer opportunities for criminal behavior, this type of weakness creates
pressures and incentives for citizens to engage in criminal activities – a
notion that is consistent with what Joel Migdal termed “survival
strategies.”15 Amidst conditions of economic hardship caused by unem-
ployment and hyperinflation, there is a tendency to turn to extra-legal
means of obtaining basic needs. Illicit means of advancement offer op-
portunities that are simply not available in the licit economy. During the
1990s this took a unique form in Russia as a result of the decline in status
of some of the central institutions of the state, such as the military and
the intelligence agencies. Not surprisingly, therefore, corruption in the
Russian military has become pervasive, with all ranks engaging in their
own entrepreneurial activities and selling both light and heavy weapons
to anyone with the money to pay.16 Equally if not more striking was the
migration into organized crime of specialists in violence – former special
forces and KGB operatives – who were trained and then discarded by the
state. Many contract killings in Russia have the hallmark of former KGB
agents and, for important victims at least, reap relatively high rewards.
Another variant on the social welfare hole is that some criminal orga-
nizations and criminal leaders engage in a form of paternalism that earns
them considerable gratitude and at least tacit support from members of
the populace. In Colombia during the 1980s, for example, Pablo Escobar
initiated a program called Medellin Without Slums that provided new
houses for poor people. Very visible, and sometimes even ostentatious,
174 Phil Williams
support for charities is another aspect of the same tendency. In effect, or-
ganized crime becomes a surrogate for the state. Although the functional
hole is filled to only a very modest extent by organized crime, the benefits
from this are considerable – and the contrast between criminal provision
and the apparent ineptitude or indifference of the state could hardly be
more marked.
Another capacity gap in weak states is the inability to control borders.
In states-in-transition this is often a major shift from the state of affairs in
the old regime when the state was isolated from the world. Not only do
such states generally display a greater degree of openness to the outside
world, but they also encourage external trade and investment. The diffi-
culty is that, when borders are opened, controlling who and what enters
and distinguishing between licit and illegitimate business activity become
much more difficult. Criminal organizations take advantage of this and
states that have holes in their border control are prime candidates for
transshipment of illegal goods.
There are, of course, other capacity gaps and functional holes providing
opportunities that are readily exploited by transnational criminal orga-
nizations. The discussion here offers a sampling of the problem rather
than a comprehensive analysis. One of the critical points, however, is that
such conditions are attractive to criminal organizations. Consequently,
these organizations will do everything they can to perpetuate a situation
in which the risks they face are low and controllable, and the opportuni-
ties are very considerable. As one close observer and former practitioner
has shrewdly noted, “organized crime may begin to grow in a country
due to gaps in laws or enforcement. But over time these gaps have to
be forced open into ever larger holes in governance to make room for
the criminals’ greed.”17 Perhaps even more important than greed in this
enlargement process, however, is the desire of the criminals to retain a
low-risk environment in which they are safe from arrest and from which
they can engage in a variety of transnational criminal enterprises. It is in
this connection that corruption becomes particularly important.
Transnational organized crime and corruption

One of the problems with many discussions of corruption is that it is
treated simply as a condition or pathology that needs to be corrected.
In the present context, it makes much more sense to treat corruption
as an instrument. The key then becomes a matter of determining who
is corrupting whom for what purposes and using what means. Although
much corruption stems from officials intent on using public office for
private gain, organized crime groups use corruption as a major instrument
Table 6: Targets and objectives of corruption
Target of corruption Objective of corruption
Executive branch – Create a safe haven

– Obtain protection and support
– Obtain information
Legislature – Obtain favorable legislation
– Block unfavorable initiatives
– Obtain informal support group
Political parties – Ensure tacit support through funding
– Receive favors in return for votes
– Create obligations for new government members
Judiciary – Obtain dismissal of cases
– Obtain light sentences
– Overturn guilty verdicts
Police – Obtain information and advance warning
– Obtain time for countermeasures
– Create capacity for sabotage
– Persuade police to act against rivals
Customs – Neutralize inspections
– Protect shipments of drugs
– Obtain information on standard search procedures
Banks – Obtain approval for money laundering
– Meet “know-your-customer” requirements
– Avoid filing of suspicious activity reports
Businesses – Obtain opportunities for money laundering through
legitimate companies
– Develop opportunities for false invoicing
– Develop legitimate cover for trafficking
Civil society – Develop reputation for paternalism
– Obtain legitimacy
– Obtain public support
– Acquire information
Media outlets – Influence public debate
– Develop lobbying capacity
– Enhance legitimacy
to ensure both a congenial environment and the success of their activities.

As suggested above, corruption is one of the most important instruments
used by criminal organizations as part of their risk management strategies.
Not surprisingly, they have some very specific targets for corruption.
Some of these are identified in table 6, which provides a generic overview
of potential targets of corruption along with the benefits that can be
obtained by criminal groups.
176 Phil Williams
Among the specific objectives of criminal organizations in using corrup-

tion is the neutralization of border control authorities in the home state,
in transshipment states, and in destination or market states. This involves
what might be termed operational corruption and is designed to ensure
that the trafficking process itself is subjected to as little interference, in-
terdiction, and damage as possible. More serious is the use of “systemic”
corruption to neutralize the punitive powers of the state. Criminal orga-
nizations essentially want a congenial low-risk environment from which
they can operate with impunity. Consequently, they have many targets for
corruption, including the police and the military, the judiciary (to ensure
favorable verdicts or, at the very least, lenient penalties), the legislature
(to inhibit the passage of effective and stringent laws), and the executive
branch (to obtain protection and support). The best of all positions for
criminal organizations is to have political protection at very high levels.
This, in effect, offers not simply a risk management approach but risk
prevention. To the extent that this approach succeeds, there is less need
for the criminals to initiate countermeasures to offset law enforcement
and the like. It is also particularly corrosive of the state.
Corruption, of course, is not confined to state structures. It can also
extend to the private sector where criminal organizations seek to infiltrate,
corrupt, and control companies that can provide an apparently legitimate
cover for their activities. In addition, criminal organizations often seek to
corrupt and coopt financial institutions to ensure that they can be used
to move and hide the proceeds of drug trafficking and other criminal
activities. In effect, corrupting bank officials is a means of circumvent-
ing the impact of regulations relating to suspicious transactions and due
diligence. The Russian banking system, for example, has been heavily
infiltrated by organized crime, which has used a mixture of violence and
corruption to obtain control of a significant number of banks – some of
which have developed correspondent banking relationships with many
Western banks.
Whatever the target, however, corruption invariably involves exchange
relationships and mechanisms.18 In some cases this will simply be money
for favors – payoffs that allow the recipients a lifestyle that is far more
lavish than their income can support. For those being corrupted, the
obligation is to provide tacit support for criminal organizations, to pro-
vide these organizations with critical information, and to ensure that there
is little interference with their activities. For the criminal organizations,
although this might require a substantial portion of the proceeds of their
crimes, the investment can be understood simply as one of the necessary
costs of illegal enterprise. As suggested above, in some cases politicians
will sell their covert protection and support in return for mobilization of
voters in elections or financial support for electoral campaigns. In this
connection, it is worth emphasizing that some of the trends of the 1990s,

particularly those toward democratization and decentralization, provided
new opportunities for corruption. In many countries where democrati-
zation is moving ahead, for example, politicians need campaign finance
and a capacity to mobilize voters. This offers organized crime a major
opportunity to play a major role in the political system.
In some cases, the use of corruption goes beyond neutralization and, in
effect, enables organized crime to capture the state through the develop-
ment of what Roy Godson has termed a “political–criminal nexus.”19 In
captured states there is a symbiosis between politicians and criminals: the
criminals provide money and help to mobilize political support for the
politicians; the politicians provide protection, information, and support
for the criminals. In some cases, the state apparatus is gradually enmeshed
in a fully symbiotic relationship with criminal organizations, becoming a
real partner in these activities rather than merely a relatively passive bene-
ficiary. In a collusive relationship of this kind, high-level representatives of
the state go beyond protecting the organization to working closely with it
in the furtherance of its criminal enterprise. There are some collusive rela-
tionships, however, in which the collusion is relatively low-key and covert
and others in which it is more overt. Japan during the Cold War provided
an example of low-key collusion between state authorities and home state
criminal organizations. Italy under successive Christian Democrat gov-
ernments from the 1950s through to the 1980s offered a classic example of
a protection-for-votes deal, although one that fell apart in the 1980s. An-
other classic example of high-level political support for criminal organi-
zations occurred in Mexico where Raul Salinas, brother of President Sali-
nas, became the protector of drug trafficking organizations, and in return
was able to deposit well over US$100 million in Swiss bank accounts.
If Mexico can be considered a captured state, so too can Russia, where
the “iron triangle” of politicians, businessmen, and criminals has become
one of the dominating features of the postcommunist system. The crim-
inals provide “muscle,” support, protection, and plausible deniability for
both businessmen and members of the political and administrative elites;
the businessmen provide resources and access to the legal economy for
the criminals; and the political and administrative figures offer the legit-
imacy and cloak of the state.20 Crime and politics are also connected at
very high levels in Turkey. In 1996 the Susurluk incident – a car accident
in which a major criminal and a political figure were in the same car,
along with documents and weapons that were traced back to a minister –
exposed connections between organized crime and the political elite, con-
nections that were subsequently underlined by allegations that a former
prime minister and her husband were heavily involved in various criminal
activities.
178 Phil Williams
One of the key issues in these collusive or highly symbiotic relationships

that is insufficiently understood – and rarely even discussed – concerns
the distribution of power. Since it is the weaknesses of the state, how-
ever, that lead to the dynamic growth of organized crime, it would not be
surprising if the criminals – with their capacity for violence – were not, in
some respects at least, the dominant element in the relationship. In effect
this reverses the relationship in strong states such as the USSR, where
organized crime operated, but within parameters determined by the state
and its officials.
The model of vulnerable states under siege or captured by organized
crime is not the only possible representation of the relationship between
organized crime and the state. Another variant that also needs to be con-
sidered, if only briefly, concerns what might be called the criminal state.
This involves the state itself not just benefiting from or actively participat-
ing in organized criminal activities but actually directing and controlling
such activities. Prime examples of the state itself engaging in criminal en-
terprises are Nigeria and North Korea. In the case of Nigeria, the military
government, especially during the Abacha era, ran criminal enterprises
under the guise of the state apparatus. Recent revelations that the Swiss
Federal Police have discovered US$ 654 million in various Swiss banks
accounts belonging to former president Abacha and his family suggest
that both defrauding the state and using the state as a cover for crime were
very lucrative, to say the least. North Korea has been less successful, but
provides another example not of organized crime taking over the state,
but of the state taking over organized crime – and using opium cultivation
and heroin trafficking, various forms of smuggling, and counterfeiting as
revenue sources. In both cases state officials have initiated and managed
a variety of organized criminal activities for personal enrichment.
Conclusions
Charles Tilly in an oft-quoted comment once noted that the state was
simply the most efficient and effective form of organized crime.21 In
effect, the state legitimized organized crime by transforming extortion
into taxation, brute force into authority, and rule by fear into rule by con-
sent of the governed. The implication of the preceding analysis, however,
is that in the last decade or so there have been signs that organized crime
has been fighting back and that the state is not as successful as it was in
the period of state-building so trenchantly dissected by Tilly. The issue
remains, however, as to whether transnational organized crime is appro-
priately understood as an example of private authority or is simply a case
of private power that seeks to masquerade as public authority.
The answer to this question has to go beyond a simple dichotomy, to

recognize that organized crime combines elements of power and authority
in ways that are very distinctive. On the one side, it is clear that organized
crime relies heavily on power and has actually turned the capacity for co-
ercion into a highly lucrative art form through its strategies for extorting
business. Moreover, organized crime very clearly challenges the govern-
ment monopoly of violence. In the two cases where this has been partic-
ularly overt and brutal – Italy and Colombia – organized crime lost much
of its popular support and the state was ultimately able to mobilize even
greater power and beat back the challenge. It is also clear that organized
crime, whether operating domestically or transnationally, has distinctive
features that set it apart from other private actors. It lacks accountability,
and for the most part operates covertly. Moreover, unlike other private
authorities, it seeks to undermine or circumvent international norms,
rules, and regulations. Furthermore, the clandestine activities that are
an essential part of organized crime, by their very nature, do nothing to
build authority or legitimacy.
Yet there are dimensions of organized crime that suggest authority
rather than power. The wealth that organized crime accrues through its
operations in some cases is used to create a base from which it is some-
times possible to develop a degree of legitimacy that can be parlayed
into authority structures. Similarly, the exploitation of functional holes
in ways that substitute for the state, for example, gives organized crime
some degree of legitimacy and, at the domestic level at least, provides
a crude form of governance in certain areas where it would otherwise
be absent. Similarly, the occasional use of paternalism to build domestic
support can be understood as an attempt to transform power based on
fear into more legitimate notions of authority and approval, if not actually
consent. It is also clear that organized crime flourishes in societies where
family, kinship, clan relations, and patron–client relationships are the pri-
mary points of reference and loyalty. In this sense, organized crime can be
understood as an alternative forum to the state for allegiance and affilia-
tion. This is also true in diaspora communities. Ethnic migrants are often
marginalized in their new home, and as a result develop little loyalty for
the political authorities and little trust in law enforcement. Instead, they
develop coping mechanisms that include organized crime, black market
activities, and, in the Chinese case, their own underground banking sys-
tem sometimes referred to as “flying money.” The underground banking
system is particularly interesting in that it is based on trust and ostracism
for those who betray it. Moreover, in some immigrant communities,
organized crime figures are likely to have considerable authority and in-
fluence at least within the confines of the community. Insofar as authority
180 Phil Williams
involves allegiance that is given voluntarily rather than coerced, then it

is clear that, in some communities, organized crime can be understood
in terms of private authority. In other words, when public authority is
weak, and state legitimacy is low, other less formal, often illicit forms of
authority will thrive. Organized crime can be understood as one of these.
In sum, there are some grounds for treating organized crime as private
illicit authority.
In some ways, however, the most intriguing aspect of transnational or-
ganized crime is the tendency of at least some criminal organizations to
cloak their power in the mantle of state authority. This is not to suggest
that the criminal symbiosis will determine all aspects of state behavior. In
instances in which the state is captured by organized crime, the state will
still carry out many of its traditional functions in international relations in
the normal way. At the same time, the state authorities will take measures
to ensure that organized crime functions unhindered and uninhibited in
its pursuit of wealth. In domestic terms this will mean doing little to close
the capacity gaps or fill the functional holes; organized crime must be all-
owed to continue to function unhindered and in a low-risk environment.
The implication is that there will continue to be states that provide sanc-
tuaries or safe havens for criminal organizations. Indeed, their number
could well increase as transnational criminal organizations continue to
entrench themselves in weak states in the former Soviet Union, Africa,
Latin America, and parts of Asia.
Because of differing degrees of vulnerability, however, some states are
not only strong enough to resist transnational organized crime but also
willing to confront criminal organizations, seeking to reduce their power,
to stem their activities, and to dismantle their organizational structures.
Not surprisingly, those states that adopt a confrontational strategy to-
ward transnational criminal organizations are usually both strong and
legitimate. In effect, this suggests a differentiated state approach that ac-
knowledges that some states are in retreat but that others are not. This is
consistent with the analysis of Linda Weiss that focuses on different do-
mains of activity but highlights the adaptation rather than the retreat of
the state.22 If some states are fighting back against transnational organized
crime, the task will not be easy – not least because weak and captured
states will seriously hinder multilateral efforts to combat transnational
organized crime. Efforts to provide global regimes or multilateral attacks
on organized crime will suffer from the problem of defecting states. The
defections themselves will take various forms. In the case of weak states
there will be tacit defections, as nominal adherence to global regimes and
multilateral efforts is not accompanied by substantive actions. There will
also be overt defections by captured and criminal states. Such defections
will have serious consequences, ensuring that regimes aimed at com-

bating transnational organized crime will be seriously incomplete, and
that criminal organizations will continue to enjoy geographic and juris-
dictional loopholes. The result will be not the containment of criminal
activity but its displacement – geographical and methodological. In short,
multilateral efforts by states to combat transnational organized crime will
continue to exhibit serious deficiencies. Sanctuary or safe-haven states
will continue to put transnational criminal organizations out of the reach
of those states whose laws they have violated and whose populations pro-
vide customers for their illicit products and services.
There is another possible consequence that is even more disturbing:
it is not inconceivable that the major global divide will be caused not by
competing ideologies, the struggle for power, or Huntington’s “clash of
civilizations,” but by clashes between states that uphold law and order and
those that are dominated by criminal interests and criminal authorities.

1 James Rosenau, Turbulence in World Politics (Princeton, N.J.: Princeton
2 See “The Changing Role of the State,” transcript from the 75th Anni-
versary Symposium of a keynote address given by Jessica Mathews
at the Harvard School of Public Health. The transcript is available at
www.hsph.harvard.edu/digest/mathews.html.
4 See Saskia Sassen, Losing Control?: Sovereignty in an Age of Globalization,
1995 Columbia University Leonard Hastings Schoff Memorial Lectures (New
York: Columbia University Press, 1996).
5 This is one of the notions touched on ibid.
6 Sassen has an excellent discussion of this in terms of the notion of citizenship.
See ibid.
7 Fenton Bressler, Interpol (London: Mandarin, 1993),.
8 The “power to hurt” is one of the main themes explored in Thomas C.
Schelling, Arms and Influence (New Haven and London: Yale University
Press, 1967).
9 Richard Friman, “Just Passing Through: Transit States and the Dy-
namics of Illicit Transshipment,” Transnational Organized Crime, 1 (1) (Spring
1995), 65–83.
10 Diego Gambetta, The Sicilian Mafia: The Business of Private Protection
(Cambridge, Mass.: Harvard University Press, 1993).
11 Francisco E. Thoumi, Political Economy and Illegal Drugs in Colombia (Boulder,
Colo.: Lynne Rienner, 1995), pp. 172–73.
12 Quoted in Richard Lotspeich, “Crime in the Transition Economies,” Europe–
Asia Studies, 47 (4) ( June 1995), 569.
182 Phil Williams
13 See Graham H. Turbiville, Mafia in Uniform: The Criminalization of the Russian

Armed Forces (Fort Leavenworth, Kansas, 1996).
14 This is a theme in the work of Diego Gambetta and has been applied to
Russia by Federico Varese, The Russian Mafia (Oxford: Oxford University
Press, 2001).
15 See Joel S. Migdal, Strong Societies and Weak States (Princeton, N.J.: Princeton
University Press, 1988), for the development of this notion.
16 Graham H. Turbiville, “Organized Crime and the Russian Armed Forces,”
Transnational Organized Crime, 1 (4) (Winter 1995), 57–104.
17 Jonathan Winer, “International Crime in the New Geopolitics: A Core Threat
to Democracy,” in W. F. McDonald (ed.), Crime and Law Enforcement in the
Global Village (Cincinnati, Ohio: Anderson, 1997), p. 46.
18 This notion is developed in Donatella della Porta and Alberto Vannucci, Cor-
rupt Exchanges (New York: Aldine De Gruyter, 1999).
19 Roy Godson, “Political–Criminal Nexus: Overview,” Trends in Organized Crime,
3 (1) (Fall 1997), 4–7.
20 The author would like to express his appreciation to William Cook and Gre-
gory O’Hayon for these observations.
21 Charles Tilly, “War Making and State Making as Organized Crime,” in Peter
B. Evans, Dietrich Rueschemeyer, and Theda Skocpol (eds.), Bringing the
State Back In (Cambridge: Cambridge University Press, 1985), pp. 169–91.
22 Linda Weiss, The Myth of the Powerless State (Ithaca, N.Y.: Cornell University
Press, 1998).
9 The return of the dogs of war?
The privatization of security in Africa
Bernedette Muthien and Ian Taylor
In the current era, neoliberalism has emerged as the defining economic

program by which state administrations are held accountable. This has
gone hand in hand with the globalization process, building a “market
civilization” whereby states are more and more subject to the apparent
arbitrary whim of “the market.”1 At the same time, technological ad-
vances have facilitated a compression of time and space within the global
political economy.2 The autonomy of the state has, in a varied but di-
alectical action, been reduced and the ability of administrations in the
South to resist prescriptions emanating from the developed world (but
increasingly transnational in character) has been diminished. “Faced with
the power of globalized production and international finance, including
debt structures, leaders are constrained to concentrate on enhancing na-
tional conditions for competing forms of capitalism,” the dominant being
neoliberalism.3 This process is partial and incomplete, but is particularly
strong and most energetic in the periphery of the global economy, where
the hegemonic agenda has strenuously pushed for states to abandon any
(remaining) dirigiste pretensions they may possess and instead “open up”
their economies to international capital flows. At the same time, the na-
tional budget has been framed by advocates of the neoliberal solution as a
source of many of the state’s woes, and tight fiscal constraints are placed
on its activities, with obvious social implications. This has been particu-
larly so in Africa, where international lending agencies have placed strict
conditionalities on state administrations seeking funds to (try to) help
them out of the economic malaise they currently suffer.4
Such constraints on the national budget have increasingly served to
stimulate a turn toward the privatization of everyday life, while at the
same time emasculating the state’s authority to regulate the social sphere.
Though uneven in its effect on spatial territories, state administrations
have increasingly had to contend with public and private forms of transna-
tional governance.5 National, and nationalist, developmental projects
in the South have, since the demise of the NIEO (New International
Economic Order) movement, increasingly been abandoned. This process
183
184 Bernedette Muthien and Ian Taylor
has sometimes been voluntary, but mostly it has been under disciplinary
pressure from international financial institutions and other donor sources,
and administrations in the South have had to adopt a variety of strategies
to survive.6 As this has occurred, space has opened up for a more individ-
ualist, indeed private, model of accumulation for elites in the developing
world.
This has had important implications for the stability of a number of
weak states on the African continent, in some case stimulating a down-
ward spiral into anarchy and civil war. Causality can be traced if one ar-
gues that neoliberal programs have eroded the neopatrimonial state that
came into being in the postcolonial period, and have subsequently invited
the elites largely to abandon formal state-derived authority and prestige:
to “privatize” their activities, as it were. This has arisen in a situation in
which a rent-seeking state is no longer capable of being used in the usual
neopatrimonial fashion of “buying off ” opponents. The extent to which
this has occurred is, of course, specific to each state. Certainly, the larger
the state, the greater the amount of space is created for elites to secure
power and privilege via the diversion of funds, awarding of sinecures, and
the creation of client–patron relationships, etc.
Yet in the era of globalization, the neoliberal project assails the very base
upon which a neopatrimonial state is predicated and, by rolling back the
state, dissolves the elaborate patron–client relationships built up within
the framework of an expanded state. As Hoogvelt points out, neoliberal
programs and the “manner of reining in the rent-seeking state and its
officials [dissolve] the patrimonial glue that holds the society together.
It brings about fragmentation as erstwhile clients are now forced to seek
their own benefits independent from the central authority.”7 As the im-
pulses generating such moves intensify, the state’s position within society
is peeled back, and personal – and private – networks of accumulation
and power develop in the absence of any strong legitimating authority.
What is left is a rump state, with the symbols and trappings of authority
remaining to be captured, but very little else.
This of course is not to say that the state “withers away” totally: au-
thority does not become altogether privatized, although formal structures
may be highly circumscribed in their effectiveness. What usually features
is an uneasy “shadowing” of the formal, with patrons of private sites
of authority often crossing from one to the other, profoundly blurring
the distinction between state and non-state activity. Chabal and Daloz
remark that “patrons [become] ‘licensees’ of violence in that they pos-
sess that attribute – the exercise of coercion – which in more politically
institutionalized societies is the strict preserve of the state. Control of
and protection from violence, or coercion, are thus unofficially devolved.
The return of the dogs of war? 185
Patrons can access or restrain official force, most notably in military

regimes, while at the same time maintaining their own corps of armed
men to protect clients and counter the violence of competitive networks.”8
This scenario describes situations that have recently occurred in the
Democratic Republic of the Congo and Sierra Leone, to name but two.
In states that have endured particularly intrusive disciplinary neolib-
eral programs, or where the state was weak in the first place, even the
monopoly on violence dissolves, and security – and the ability to use
force as a means of accumulation – becomes the realm of those who can
afford it. This cannot but be negative. As Clapham asserts:
The use of power over other people for purposes essentially of private gain is
corrupt, not merely because it fails to correspond to formal rules of essentially
Western origin, or to meet the demands of “good governance” laid down by
external aid donors, but because of its impact on the lives of the people most
harshly affected by it. This impact is in turn all too clear from an examination of
those parts of Africa [such as] Liberia, Nigeria, Sierra Leone, Zaire . . . where it
has been most evident.9
The theme we have sketched above obviously has important ramifications

for security in a number of African countries that have been particularly
affected by the onrush of globalization. The situation in many senses re-
flects the intensification (to an extreme, to be sure) of the privatization of
authority that is increasingly marking notions of governance throughout
the world, as globalization reconfigures the global political economy and
as “the market” stimulates the retreat of the state.10 The (re-turn to the)
private as a source of security, in an era in which the state has been “rolled
back” from much of its traditional involvement in society and in which
the authority of the state has been substantially eroded, is the subject of
this chapter.
The return of private armies: privatizing security

With the end of the Cold War, a disturbing increase in the reemergence
of private armies in Africa has been witnessed. Much of these seemingly
spring from the refuse thrown out as apartheid died, with a plethora of
former South African “troopies” now seeking an outlet for their redun-
dant security skills in places as far apart as Angola and Sierra Leone.
This phenomenon needs to be placed within the wider global context of
the privatization of authority. In doing so, the notorious firm Executive
Outcomes and its role in conflicts in Angola and Sierra Leone is partic-
ularly highlighted as a case in point. Before doing so, however, we first
define the concepts “security” and the “privatization of security.”
“Security” is a generic term, suggesting notions of “protection from

harm,” while emphasizing the liberal concerns related to the protection
of citizens and their private property. This responsibility has historically
been the domain of the state – the state has traditionally been entrusted
with providing security for individuals. However, due to the intensifica-
tion of factors such as the global decline of state power and authority
(particularly in the developing world), the concept of security has shifted
more recently from the state providing security for individuals (state
security) to individuals providing their own security. In territories where
the state is seemingly now incapable of guaranteeing the security of its
citizens, non-state initiatives are rapidly filling the vacuum. Indeed, “the
erosion of a government’s administrative capacity brings in its train the
delegitimization of public authority, a precursor to its confiscation by
private actors.”11 This is reflected in a whole gamut of private activities,
ranging from neighborhood patrols and vigilantism, to the employment of
technologically advanced security equipment, private security personnel,
and gated communities. In such a scenario, security has been transformed
from being a service provided by the state for all citizens, to being a mar-
ket good for those who can afford it: a reflection of the privatization of
everyday life, with all the profound implications this has for those who
cannot afford the luxury of private security arrangements.
At this point, it is important to note a conceptual distinction. The pri-
vatization of security, while generic, refers in the context of this chapter
to those private security concerns involved in effective civilian policing.
This includes operations such as the guarding of corporate installations,
embassies, and, in South Africa at least, the ubiquitous 24-hour rapid
response units who patrol the mostly white suburbs of South Africa’s
towns and cities. In contrast to these commercial concerns, we are more
concerned with the privatization of war – the private military firms that
offer their services to perform military functions hitherto reserved as the
prerogative of the state, including armed combat, the training of osten-
sibly state military units, the gathering of intelligence, and the effective
replacement of state authority “on the ground” in large geographical
areas. As we will show, the private armies now reemerging in Africa play
a crucial role in a number of territories on the continent. As national
economies become more and more outwardly linked to the global mar-
ket, and as the dominant ideology of neoliberalism demands the rolling
back of the state, the neopatrimonial framework which has held certain
fragile states within Africa together has begun to unravel. As this has
occurred, such territories have become increasingly open and subject to
exploitation by undemocratic but powerful individuals, as well as by un-
scrupulous irregulars. At the same time, transnational corporations have
frequently stepped in to take advantage of this situation, often working

in tandem with the emerging sites of private authority. In many cases,
the usage of services offered by private armies has gone hand in hand
with such developments, with private security companies being engaged
to guard mining installations a prime example.
Criticism of such developments has invariably focused on the merce-
nary nature of their activities. The word “mercenary,” with very negative
connotations in Africa, includes memories of “Mad Mike” Hoare in the
Congo, Colonel Callan in Angola, or Bob Denard in the Comores. These
stir up images of white “dogs of war” embarking on killing sprees, toppling
governments, and generally undermining the sovereignty and indeed
credibility of post-independent African states.12 It is important there-
fore to ask critically whether private armies such as Executive Outcomes
are mercenaries. Nathan distinguishes mercenaries as soldiers hired by
a foreign government or rebel movement to contribute to the prosecu-
tion of armed conflict – whether directly by engaging in hostilities, or
indirectly through training, logistics, intelligence, or advisory services –
and who do so outside the authority of the government and defense force
of their own country.13 Article 47 of the 1997 Additional Protocol I of
the Geneva Convention considers someone who is specifically recruited
locally or abroad in order to fight in an armed conflict as a mercenary.
The protocol adds that a mercenary is someone who takes direct part in
the hostilities essentially by the desire for private gain, and who, in fact,
is promised remuneration above that paid to soldiers of similar ranks and
functions in the contracting armed forces, and who is neither a national
of a party to the conflict nor a resident of a territory controlled by a party
to the conflict. Subparagraph (c) of Article 47 clearly excludes what some
analysts have called “ideological mercenaries,” citing Che Guevara and
the International Brigades of the Spanish Civil War during the 1930s.
Clearly then, members of standing armies engaged by countries that
are not their own – the French and Spanish Foreign Legions and the
Gurkhas of the British Army – are excluded from this working definition
of what constitutes a mercenary. However, many of those who are thought
of as mercenaries invariably deny their involvement in active combat, in-
stead claiming to be employed in training, logistics, or advisory capacities.
This being so, Nathan’s definition is more inclusive (and incidentally is
closer to South Africa’s Regulation of Foreign Military Assistance Act of
1998). This act defined foreign military assistance as advice or training;
personnel, financial, logistical, intelligence, or operational support; per-
sonnel recruitment; medical or paramedical services; or procurement of
equipment. This broad definition continues in paragraph (iv) to define
“mercenary activity” as “direct participation as a combatant in armed
conflict for private gain,” in line with Article 47 above. Such a broad
definition of who and what is a mercenary was specifically enacted to
stop private armies becoming embroiled in regional conflicts. This was
sparked by a desire to put a stop to various South Africans’ continued
support for UNITA in Angola by supplying arms and pharmaceuticals
during the postapartheid period, as explored below.
Be that as it may, it is clear that companies such as Executive Outcomes
are mercenaries, for their market, as it were, is dependent upon the break-
down of state capacity, invariably triggered by war or violent conflict.
Indeed, the private security companies discussed in this paper operating
in Africa, whether for the purposes of guarding installations, supplying,
and servicing military equipment or actual combat, are intricately con-
nected, by nature of their shared employee pool, and the men, predom-
inantly former combatants, who run them and profit from the conflicts
in their areas of operation. As Francis puts it, “[t]hese companies thrive
on conflict, and it is these conflicts that provide market opportunities for
them, without which they are failed business ventures.”14
Obviously, protestations of innocence wrapped around the cloak of
legality have been standard fare of firms involved in the business of
war. According to one account, Italian mercenaries in the Middle Ages
“often organized themselves like other commercial guilds at the time . . .
As men of business, they studied their trade, the available markets and
their competitors.”15 In short, whether the “Free Companies” of medieval
Europe or Executive Outcomes of contemporary Africa, such firms are
effective private armies. Pech refers to them as “corporate armies” and
argues that they are:
A privately owned military group whose finances, personnel, offensive operations,

air wing division and logistics are all handled within a single group or through
interlinked companies and enterprises. In its most basic form, it would be man-
aged by a common pool of directors and have a small permanent corps of staff,
serving its own commercial interests and those of affiliated entities. Such a group
of companies would typically be owned, organised, paid and deployed by the con-
trolling shareholders of one or more private companies, which, in turn, may be
transnational conglomerates. As such, the traditionally state-owned powers and
instruments for effecting political and social change through the use of force are
transferred through privatisation to a corporate entity or group. These powerful
entities function at both a corporate, suprastate and the transnational level thus
transferring the powers of a global city-state to a corporate group that is essentially
accountable only to laws of profit and those of supply and demand.16
Such corporate or private armies may now establish mining and drilling
companies with international ties, registered offshore with occasional list-
ings on international stock exchanges. They have diversified widely to
include in their repertoire not only the provision of security and military
training, but construction and civil engineering as well. Numerous com-
panies are formed in joint venture partnerships with government leaders
and the families of these leaders, creating monopolies in the economies
of the regions in which they are involved. Indeed, in many territories the
private army “constitute[s] an advance guard for the construction of new
corporate empires.”17
Certainly, private armies like South Africa’s Executive Outcomes are
effective corporate networks, and have become transnational by defini-
tion, from their diverse areas of operation, to their multiple stock ex-
change listings, offices, and representatives internationally. It is not too
much to suggest that they could be classed as transnational corpora-
tions. Like conventional transnational corporations, they also employ
each other’s services, as Sandline and Branch Energy have employed
Executive Outcomes and its subsidiary companies. Whether government-
or privately employed, private armies ultimately aim to secure a geo-
graphic area in order to facilitate resource extraction. What unites private
armies and transnational corporations in the exploration business is their
profit motive. This process is exacerbated by globalization and the domi-
nance of neoliberalism. Indeed, the decline of state capacity and the push
for a continual retreat of the state from economic management facilitates
the rise of private security concerns, particularly in territories where state
authority was never particularly strong in the first place. Interestingly, in
many ways, this can be seen as a return to a scenario that marked Africa
before the development of the formal colonial state in Africa, a theme to
which we shall now turn.
Private armies in Africa’s past

During the colonial period, private companies such as the Dutch East
India Company, the British East Africa Company, or Cecil John Rhodes’s
British South Africa Company made use of privately recruited men to
protect and guard territories under the various companies’ surveillance.
These effective private armies patrolled the territories that at first were
purely commercial concerns but that rapidly became subsumed within
the wider – and more official – state-led imperial project. The history of
Zimbabwe, for example, is dominated by the activities of the British South
Africa Company (BSAC) and its attendant administrators and soldiers.
During mid-1890, 196 men of the “Pioneer Column” of the British
South Africa Company crossed from South Africa into what was later
to become Southern Rhodesia. Lured by tales of gold and other min-
eral wealth, the Pioneer Column was funded by Rhodes on the pretext
that colonial intervention was required in Mashonaland to protect the

indigenous Shona people against the Ndebele, a branch of the Zulus who
had crossed into the region several decades earlier. Rhodes had earlier
(in 1889) negotiated with the British government for a royal charter for
the British South Africa Company. This charter gave him the right to
occupy and exploit the land and mineral resources, including the gold de-
posits reputed to be in abundance throughout the area. With the promise
of mining concessions and guarantees of land, the 196 volunteers he
recruited into a de facto private army penetrated to the heart of Mashona-
land, and on 12 September 1890 raised the British flag at what was to be
called Fort Salisbury, named after the prime minister of the time.18
Guarded by these private men-at-arms, Southern Rhodesia was rapidly
invaded by a flood of prospectors, settlers, and adventurers from further
south. Within a few years, the BSAC had constituted itself into an effective
government and established an administrative and legal infrastructure to
run the country, with much of the financing being raised by the impo-
sition of taxes on local people. Refusal to pay resulted in confiscation of
their land, enforced by the private BSAC police. The confiscated land
was then turned over to white settlers. Another important aim of the tax-
ation system was to produce a supply of black workers for the mines and
white farms. Indeed, black peasants were effectively forced to look for
wage labor in order to pay the various taxes demanded by the private au-
thorities administering Southern Rhodesia. The same story was repeated
in Northern Rhodesia (now Zambia) where the BSAC also effectively ran
a private reserve. It was only in 1923 and 1924 that the Southern and
Northern Rhodesias officially became British colonies respectively.
What this demonstrates is that private armies and the large-scale pri-
vatization of authority in Africa has a long history, particularly as part
of the settler involvement in the southern African region. This tradition
of relying on private men-at-arms was resuscitated during the Second
Chimurenga (Zimbabwean war of independence) when Rhodesia’s stand-
ing army engaged the services of a number of mercenaries, especially in its
elite Special Air Services. Most of these soldiers later joined the apartheid-
era South African Defence Force after their country became Zimbabwe.
In another continuation, the ideology of white supremacy and other left-
overs from the colonial period was particularly evident in the exodus of
white Rhodesians to South Africa, who saw black rule as equaling disas-
ter and incompetence. The apartheid regime was obviously well-placed
to tap into these sentiments, and eagerly recruited ex-Rhodesians as
de facto mercenaries into its armed forces. Some of these rose to no-
toriety as they became involved in the struggle against black liberation
forces. For instance, British mercenary Tyrone Chadwick was later im-
prisoned in South Africa after admitting to a London reporter his and
other mercenaries’ roles in several murders while serving on an apartheid

hit squad farm.19 A former Executive Outcomes officer, now a restau-
rateur in Cape Town, was stationed at the most extreme apartheid-era
killing farm, Vlakplaas, subject of intense investigation by South Africa’s
Truth and Reconciliation Commission. Pech notes that EO’s founder,
Eben Barlow, while a senior officer with the Civil Co-operation Bureau
(CCB), a unit known for assassinations of anti-apartheid activists, “was
also engaged in sanctions-busting efforts in Europe which brokered the
procurement of military equipment on behalf of the SADF [South African
Defence Force].”20 Further, Barlow recruited his lieutenant at EO, Lafras
Luitingh, “while he evaded South African authorities who wanted him for
questioning in connection with the murder of anthropologist and ANC
[African National Congress] activist, David Webster in Johannesburg in
1989.”21
Along with self-confessed mercenary Donald Acheson, Johan
Niemoller, ex-CCB, has been implicated in the murder of Namibian
anti-apartheid activist Anton Lubowski. An established businessman and
supplier of equipment to the apartheid-era Defence Force, Niemoller
planned to “kick the white communists out of Africa and put the white
man back in power.”22 During 1997 Niemoller was responsible for the
spate of arms thefts on the new National Defence Force’s armories. This
was an attempt to channel arms to UNITA as part of a decades-old
pattern of apartheid and right-wing support for UNITA in Angola. In
addition, Niemoller continued to supply medicines and other equip-
ment as well as former Defence Force mercenaries to UNITA, and re-
ceived remuneration in uncut diamonds. South African arms were also
sold and transported widely to the rest of the continent, including the
Democratic Republic of Congo, with involvement by Niemoller, and sev-
eral other ex-CCB operatives, in particular ex-EO employee and now
Stabilco Security boss, Mauritz le Roux. Since at least 1995 Ibis, the
air wing of Executive Outcomes and Sandline International, has been
operating from the Johannesburg Airport quarters of Simera, the avi-
ation division of Denel, South Africa’s largest recently privatized arms
corporation.23 What unites these mercenaries, secret agents, arms dealers,
and mining corporations is their quest for personal profit and power, and
their concomitant disdain for black rule. This has continued to this very
day as the privatization of authority runs its course.
Contemporary private armies in Africa

Although the end of the Cold War and the demise of apartheid saw an
overall process of demilitarization in the region, South Africa’s recent
and massive arms purchases have reinvigorated the regional arms race
(albeit at a lower level than during apartheid). At the same time, con-
flict over control of mining and drilling interests throughout Africa has
led to a remilitarization of the region in a very short space of time.24
This is especially true in the case of central Africa, Sierra Leone, and
Angola. Accompanying this phenomenon has been the rise of private
armies, which have increasingly begun to operate throughout the con-
tinent. In southern Africa these mercenaries are predominantly demo-
bilized former apartheid soldiers, many of whom consider themselves
marginalized by the new democratic regime in South Africa.
The existence of such people fits with a scenario in which policing
by the state has become more and more constrained by budgetary and
other limitations. In such a milieu, private domestic security companies
are being used increasingly by governments, corporations, and private
individuals to protect their assets. Indeed, the privatization of domes-
tic security parallels the external privatization of war in the form of
mercenaries. As wealthier states move increasingly toward demilitariza-
tion, and cash-strapped countries cannot afford adequate domestic secu-
rity, a trend is developing by which private security firms like Executive
Outcomes increasingly meet the clamoring need among especially African
states for assistance against insurgents.
Interestingly, private interventions by firms such as Executive Out-
comes are generally viewed as being negative and to be avoided, even if
such intrusions bring a modicum of peace to an area (a point to which
we shall return later). In contrast, public, i.e. state-led, peacekeeping ini-
tiatives are generally applauded. The division between public and private
peacekeeping ventures (and the greater efficiency of the latter) is a moot
point, however, and perhaps points more to the jealousy by which state
elites guard their monopoly on violence rather than any disinterested
evaluation of the effectiveness in helping the victims of civil wars and the
collapse of formal administrations.
Returning to the rise of private sites of authority, even developed
Western states have been faced with having to decrease state spending,
and the traditional concept of social security has been under sustained
attack, sparking a proliferation of private security companies and profes-
sional security associations. This has become a multibillion dollar indus-
try, with Shearer reporting that “US citizens spent $90 billion on private
security in 1995, against the $40 billion of public funds allocated to na-
tional police forces,” and that Russia during 1997 had 4,500 companies
employing 155,000 to 1,000,000 personnel.25 Developing countries are
under even greater pressure to roll back state involvement, bolstering the
argument that in the contemporary era security is no longer a service by
the state for all its citizens, but has become a market good. Graphically, by
1996 private security guards in South Africa outnumbered the full-time

military by more than two to one,26 while Angola has seen an increase
in private security companies from 2 in 1992 to over 100 in 1998, with
contracts to protect assets, installations, embassies, diamond mines, and
international organizations working there.27
This encroachment of the private into areas formerly reserved for the
state has been facilitated by Africa’s traditionally porous borders, and
made worse by regional state fragility. In often chaotic situations, the traf-
fic of mercenaries, illegal arms, uncut diamonds, drugs, and other contra-
band has gone unmolested. Such extreme social problems and large-scale
civil unrest have certainly been exacerbated (and in many case stimulated)
by structural adjustment programs of the International Monetary Fund
(IMF) and the World Bank.28 Sadly, too, the fragility of states in Africa
has been certainly worsened by poor management, nepotism, and corrup-
tion. Yet outside involvement has often served to encourage the further
privatization of security. For instance, the IMF approved Sierra Leone’s
payments to Executive Outcomes as part of its complete funding package
to the cash-strapped country.29 At best the IMF sought stability in Sierra
Leone, as well as to ensure state revenue from the recaptured diamond
mines. At worst, they exacerbated the dire situation within the country
and contributed to the further erosion of state authority.
Following this line, a shift in inquiry from the state to the interna-
tional system underscores the significance of global financial markets as
the locus of power, a system wherein international financiers have dis-
placed states in the core–periphery continuum of political and economic
decision-making. In this view, some states are more equal than others
and those states at the bottom of the hierarchy are particularly vulnerable
to outside interference and – as the IMF involvement in Sierra Leone
demonstrates – effective undermining. Certainly, within the global hi-
erarchy, state structures operate as the means for particular groups to
influence the functioning of global markets. A state’s “strength” or ca-
pacity in this respect is attributable to its economic strength, as well as
military capacity and bureaucratic efficiency, and this is largely reflected
in its position in the global hierarchy.30
In this context, fragile and weak African states are blessed with vast
natural resources while cursed with bankruptcy, corruption, and strife.
These are ideal conditions for unscrupulous entrepreneurs to achieve
maximum profits, as the regulatory framework that surrounds sound
state administrations is largely absent, or can easily be circumnavigated.
However, the profitability and success of such ventures are hampered by
insurgent movements and the lack of state capacity to provide security.
Hence they source their own private armies, not unlike Rhodes with his
British South Africa Company, to maximize profit extraction and ensure

the safety of their (usually transient) investments.
It is true to say that, in numerous parts of Africa at present, private
companies are using their own resources to protect installations, enforce
regulations, and discipline staff on compounds little touched by local
laws. Authority has become truly privatized in the most benighted parts
of the continent. Perhaps the most detrimental effect of these corporate
mercenaries is to be found in their monopolization of the economies of the
countries in which they are active, from security, to mining and drilling,
to construction, engineering, and telecommunications. This usage of
private security, however, can be seen by foreign-based shareholders as
highly attractive. As Pech writes, “it is problems with geology that drives
down the cost of shares, not association with mercenaries. In fact when
Diamond Works’ connection to mercenaries was made public in Canada,
the share prices went up immediately. The risks may be high, but so are
the potential profits.”31 Even international humanitarian organizations
have started taking an interest in employing private armies in situations
in which the state security apparatus cannot be trusted or has collapsed.
During 1999 CARE Canada released a policy discussion document which
recommended that international “NGOs should consider the privatisa-
tion of security for humanitarian purposes.”32
Ultimately, the question of whether private armies serve a constructive
role is central to any serious assessment of their activities. They do secure
areas temporarily, which can at times facilitate peace-brokering between
conflicting parties, such as in Angola and Sierra Leone. They can also
allow international non-governmental organizations and other human-
itarian agencies to enter areas of conflict, even rescuing child soldiers
in Sierra Leone and delivering them to a rehabilitation centre. Harding
mentions that in Sierra Leone Executive Outcomes prepared logistics
for “an international aid agency to manage the return of roughly 8,000
displaced civilians” and provided the aid agency’s field workers with air
transport: “wherever they went, civilians stopped dying.”33 Nevertheless,
Harding also points out that “the trouble [with Executive Outcomes]
was that they only went where the payoff was high. The children they
had brought to Nahims [rehabilitation] centre came from Kono. If you
did not live in one of Sierra Leone’s mineral-rich enclaves, and yet you
were beset by rebels and soldiers, EO was not disposed to help you.”34
Echoing the views of international humanitarian agencies, Rubin asks,
“is it wrong to let the Sierra Leonians keep their limbs by keeping their
mercenaries?”35 This is a thorny question for critics of private authority,
when authority in any guise has evaporated and people’s lives are at stake.
Having said that, it is surely wrong that a person’s life is dependent upon
profits and their good fortune of living in an area rich in minerals, while
those who do not cannot count on protection. As one commentator has
remarked on Executive Outcomes’ record in Sierra Leone:
EO’s humanitarianism in Sierra Leone stopped abruptly at the fringe of the min-
eral areas. Even as the diamond mines churned out stones in Kono, the rebels
were continuing to terrorise villages twenty miles away. “It was a pact with the
devil,” an anthropologist in Freetown explained . . . “Everyone prospered bar the
ordinary Sierra Leoneans.”36
Conclusion
The privatization of security in Africa is perhaps the most extreme man-
ifestation of a global trend turning toward sources of private authority.
This has had unfortunate consequences for many African states, as in the
case of Sierra Leone where corrupt, unpopular, and/or unrepresentative
governments, instead of embarking on significant transformation, hired
private armies to enrich themselves through commissions from the alloca-
tion of mineral and oil concessions. Furthermore, employing mercenaries
perpetuates the myth that force is an acceptable and even desirable so-
lution to problems – something which has bedeviled postcolonial Africa
and which the continent can most certainly do without. The involve-
ment of private armies is invariably a stopgap measure which can do little
to address structural crises within the territories concerned. It is said
that Executive Outcomes’ operations in Angola precipitated the Peace
Accords, and that UNITA reneged on the peace agreements only after
the private army was expelled from the country. This temporary peace is
symptomatic of mercenary engagement specifically, and the use of force
generally: unless the root causes of conflict are addressed, a lasting peace
is not possible. As Cleary puts it:
There is no doubt that EO’s engagement by the [Angolan army] in 1993 con-
tributed to the prolongation of the war – greatly worsening the suffering by
Angola’s civilian population. It diverted attention from the need to address the
root causes of the conflict and helped to create an Angolan military capability
that has not been wisely used in regional affairs since then . . . Worse yet, peace
is still not at hand in Angola, or its surrounding region, in part because the An-
golan government, just as the old South African government, appeared to believe
that it could resolve its domestic challenges by internal suppression and military
pressure on its neighbours . . . Persons associated with EO, in whatever corporate
guise thereafter, were still engaged in the Angolan government’s efforts to resolve
the conflict by military means in 1998.37
The privatization of authority, then, has profound implications for a

number of states within Africa. This is intensified if and when security
becomes privatized and private armies are engaged. Unlike state military
units, private military firms are not subject to governmental control or
scrutiny, partly because they are not beholden to any government. The
military’s standard policy of confidentiality also precludes transparency.
Thus private armies are being hired in circumstances in which surveil-
lance of their operations is weak or even non-existent. This has profound
implications for the power of the formal state and may contribute to the
further erosion of authority invested in its traditional location: govern-
ment. In countries where the state has been despotic, the erosion of its
ability may not be overly mourned.
However, this is a short-term viewpoint for, once it has broken down,
it is very difficult for the state to rebuild itself – as the difficulties faced by
Sierra Leone and Somalia attest. In such a vacuum the emergence of pri-
vatized sites of authority may bring stability in the short term, as we have
outlined, but it is evident that peace secured through the use of mercenar-
ies is temporary and totally devoid of legitimacy – the prolonged affair in
Comores being a case in point.38 Furthermore, mercenary involvement
may temporarily mask the underlying causes of conflict and prolong an
unstable if not capricious regime – as one commentator remarked on the
situation in Sierra Leone, “even if EO’s role in Sierra Leone proves to
be beneficial, it may lead to a situation where any [despotic] government
in a difficult position can hire mercenaries to stay in power.”39 Yet the
temporary pause in fighting is bound to reignite when the private armies
depart, if the question of why private security was needed in the first place
is not addressed. Ultimately sustainable peace is possible only if the root
causes of conflict are addressed and peace-building is a significant part
of the process of social reconstruction.
If one believes in the democratic ideals of accountability, as well as
in transparency for public and governmental scrutiny, one should also
hope that these private security corporations and their employers, both
states and transnational corporations, should be held answerable for their
actions, and accountable to international and domestic legislation. This
is deeply problematic vis-à-vis private armies. As Nathan asserts:
[Private armies’ claims of accountability] inspire no confidence whatsoever . . .

They amount to this: trust me, I’m a mercenary . . . Who determines whether
Executive Outcomes personnel have committed a crime? Who investigates alle-
gations of criminal conduct? . . . The answers to these questions are no one [and]
no one.40
Having said that, even if this is so, private armies are a poor long-term
substitute for the state in the provision of security for individuals and,
taken to their logical conclusion, threaten the very foundations of the
Westphalian state system – a project that is already under severe attack

by the forces of globalization. Furthermore, unaccountable as they are to
wider society, private armies are able, in the most extreme cases, to asset-
strip a country with virtual impunity, leading to irreversible ecological
degradation, the illicit export of resource commodities, and the general
encouragement of a culture of criminality within the host country that
further diminishes the legitimacy of the state.
The turn to private security arrangements is, however – and this needs
to be reiterated – reflective of the impulses of globalization and neoliber-
alism. In an era in which the state is rolled back, the emergence of private
sites of authority is inevitable, particularly in territories where the state
was weak in the first place but where attractive profits may be made by
entrepreneurs willing to pay for private security – which characterizes
much of Africa. At the same time, in an era where the dominant global
powers have effectively disengaged themselves from an activist role on the
continent, the recourse to private security arrangements can be seen as
reflecting frustration with a world that now seems no longer to care what
happens in Africa. In this sense, the return of private armies to Africa
is a symptom rather than a cause of the continent’s milieu and it is the
wider environment – both at the domestic and international/structural
level – that needs to be addressed before mercenaries and private armies
can finally be eliminated from the list of Africa’s woes.

1 Stephen Gill, “Globalization, Market Civilization, and Disciplinary Neo-
Liberalism,” Millennium: Journal of International Studies, 24 (1995), 399–
423.
2 David A. Held, Anthony G. McGrew, D. Goldblatt, and J. Perraton, Global
Transformations (Cambridge: Polity Press, 1999).
3 James Mittelman, “The Dynamics of Globalization,” in Mittelman (ed.), Glob-
alization: Critical Reflections. International Political Economy Yearbook, vol. 9
(Boulder, Colo.: Lynne Rienner, 1996), p. 7.
4 K. Mengisteab and B. Logan, Beyond Economic Liberalization in Africa: Struc-
tural Adjustment and the Alternatives (London: Zed Books, 1995).
5 Richard Stubbs and Geoffrey Underhill (eds.), Political Economy and the Chang-
ing World Order, 2nd edn. (Oxford and New York: Oxford University Press,
2000).
6 F. Adams, S. Gupta, and K. Mengisteab (eds.), Globalization and the Dilemmas
of the State in the South (London: Macmillan, 1999).
7 A. Hoogvelt, Globalization and the Postcolonial World: The New Political Economy
of Development (Baltimore, Md.: Johns Hopkins University Press, 1997),
pp. 175–76.
8 P. Chabal and J.-P. Daloz, Africa Works: Disorder as Political Instrument (Oxford:
James Currey, 1999), p. 80.
9 C. Clapham, Africa and the International System: The Politics of State Survival
(Cambridge: Cambridge University Press, 1996), pp. 251–52.
11 J.-F. Bayart, S. Ellis, and B. Hibou, The Criminalization of the State in Africa
(Oxford: James Currey, 1999), p. 96.
12 The fear of such activities by state elites in Africa should not be underesti-
mated. Indeed, Africa is the only continent to enact a specific law to outlaw
mercenaries on a pan-continental basis – the Convention on the Elimination
of Mercenarism in Africa, adopted in Libreville in 1977 and entered into force
in 1985.
13 L. Nathan, “Lethal Weapons: Why Africa Needs Alternatives to Hired Guns,”
Track Two, 6 (2) (August 1997), 10.
14 D. Francis, “Mercenary Intervention in Sierra Leone: Providing National
Security or International Exploitation?,” Third World Quarterly, 20 (2) (April
1999), 327.
15 C. Botha, “Soldiers of Fortune or Whores of War? The Legal Position of
Mercenaries with Specific Reference to South Africa,” Strategic Review for
Southern Africa, 15 (2) (1993), 77.
16 K. Pech, “Executive Outcomes: A Corporate Quest,” in J. Cilliers and
P. Mason (eds.), Peace, Profit or Plunder? The Privatisation of Security in War-
Torn African Societies (Halfway House, South Africa: Institute for Security
Studies, 1999), p. 83.
17 Ibid., p. 82.
18 D. Martin and P. Johnson, The Struggle for Zimbabwe (Harare: Zimbabwe
Publishing House, 1981).
19 The apartheid government maintained several farms for its security establish-
ment where detained anti-apartheid activists and captured liberation
movement combatants were held and “turned into” apartheid spies and oper-
atives. Many detained and/or captured anti-apartheid activists and/or insur-
gents were tortured and/or killed, and their remains discovered and deaths
investigated by the post-apartheid Truth and Reconciliation Commission.
The farms were also used as bases from which to launch internal and external
attacks on sites of resistance against apartheid, as well as to host recreational
activities for various apartheid security forces: e.g., some apartheid operatives
were known to dispose of detainees’ corpses on huge bonfires, while simulta-
neously holding a barbecue with much alcohol consumption and revelry.
20 Pech, “Executive Outcomes,” p. 84.
21 Ibid., p. 85.
22 K. Pech, W. Boot, and A. Eveleth, “South African Dogs of War in Congo,”
Mail & Guardian (Johannesburg), 28 August 1998, 7.
23 K. Pech and D. Beresford, “Africa’s New-Look Dogs of War,” Mail &
Guardian ( Johannesburg), 24 January 1997.
24 I. Taylor and P. Williams, “South African Foreign Policy and the Great Lakes
Crisis: African Renaissance Meets Vagabondage Politique?,” African Affairs,
100 (399) (April 2001), 265–86.
25 D. Shearer, Private Armies and Military Intervention, Adelphi Paper No. 316
( New York: Oxford University Press, 1998), pp. 24–26.
26 M. Malan, “Security Firms or Private Armies?,” The Star ( Johannesburg), 30

August 1996.
27 M. Malan, “Can Private Peacekeeping Deliver ‘Executive Out-comes’?,”
Indicator SA, 1 (2) (1997), 12–15; K. Pech, “Bill to Crack Down on SA
Mercenaries,” The Star (Johannesburg), 19 September 1997; Shearer, Private
Armies.
28 Taylor and Williams, “South African Foreign Policy.”
29 Shearer, Private Armies, p. 68.
30 Immanuel Wallerstein, After Liberalism ( New York: New Press, 1995).
31 Pech, “Executive Outcomes,” p. 92.
32 M. Bryans, B. Jones, and J. Gross Stein, “Mean Times: Humanitarian Action
in Complex Political Emergencies: Stark Choices, Cruel Dilemmas,” Coming
to Terms, 1 (3) (1999), www.care.ca.
33 J. Harding, “The Mercenary Business: ‘Executive Outcomes,’ ” Review of
African Political Economy, 24 (71) (1997), 96.
34 Ibid., 93.
35 E. Rubin, “Saving Sierra Leone, at a Price,” New York Times, 4 February
1999.
36 A. Russel, Big Men, Little People: Encounters in Africa (Basingstoke: Macmillan,
1999), p. 186.
37 S. Cleary, “Angola: A Case Study of Private Military Involvement,” in Cilliers
and Mason, Peace, Profit or Plunder?, p. 166.
38 S. Weinberg, Last of the Pirates: The Search for Bob Denard (London: Jonathan
Cape, 1994).
39 M. Ashworth, “Africa’s New Enforcers,” Independent (London), 16 Septem-
ber 1996.
40 Nathan, “Lethal Weapons,” 11.
Part V
Conclusions and directions

10 Private authority as global governance
Thomas J. Biersteker and Rodney Bruce Hall
Private locations of authority have begun to influence a growing number

of issues in our contemporary world. Authoritative private actors are not
only important players in the international political economy; they are
increasingly beginning to play a critical role in the governance of other
important spheres of social and political life. They are engaged in the es-
tablishment of standards, the provision of social welfare, the enforcement
of contracts, and the maintenance of security. The essays in this volume
illustrate well the extent of the phenomenon, its complex character, the
controversies surrounding its definition, and some of its implications.
While the very meanings of the “private,” of “authority,” and of “private
authority” themselves remain controversial, we think we have made some
important progress in our understanding of these phenomena.
Rather than define the realm of the private in an abstract, theoretical
sense, most of the contributors to this volume define the private sector in
terms of what it is not. For Claire Cutler, private actors are increasingly
engaged in authoritative decision-making that was previously the prerog-
ative of sovereign states, while for Saskia Sassen the domain of the private
is taking over functions once enclosed in national legal frameworks.
Ronnie Lipschutz and Cathleen Fogel differentiate the private sector
from the public, while Mark Juergensmeyer locates it in opposition to the
government. Thus, whether it is differentiated from the sovereign state,
the government, the national legal framework, or the public sector, the
private sector is typically defined in terms of some residual of the national
state.
Illustrations of private actors abound throughout the essays included in
this volume. For those with a primary interest in private market author-
ity, firms, private international regimes, networks, or transnational private
arenas (composed of regulatory agencies and/or networks) are primary
examples of private, market-associated authority. For contributors with
a primary interest in what we term moral authority, non-governmental
organizations, transnational regimes, or religious transnationalists are ex-
amples of private actors that have assumed authoritative functions. In
203
204 Thomas J. Biersteker and Rodney Bruce Hall
the realm of security, organized crime syndicates, private armies, and

private security agencies are different illustrations of private locations of
authority.
In what sense, however, do any of these private actors possess author-
ity? In chapter 1 of this volume, we differentiated authority from power,
arguing that, to have authority, actors must be perceived as legitimate. In
order to claim any rights of legitimacy, actors in authority must obtain
some form of obligation from those subject to their authority. As Claire
Cutler argues in her contribution to this volume, there must be an oblig-
atory acceptance of the legitimacy of as well as respect for an authority
“as a specialist, a scholar, or an expert” (p. 28 above). Authority thus
requires both the recognition by, and the consent of, those governed by
that authority. Drawing further on the work of Cutler and others, we also
described the importance of the public social recognition of claims of
authority. Authority, however, need not be accorded exclusively to pub-
lic actors. As long as there is consent and social recognition, an actor –
even a private actor – can be accorded the rights, the legitimacy, and the
responsibilities of an authority.
While Louis Pauly forcefully challenges the very idea of private author-
ity, and Phil Williams remains doubtful about whether transnational or-
ganized crime possesses authority, rather than simple, brute power, most
of the contributors to this volume discuss what they term the growing
authority of private actors. For Stephen Kobrin (and to some extent, for
Saskia Sassen), the market itself is becoming increasingly authoritative.
Sassen describes “accommodations on the part of the national state” to
the requirements of the global capital market (p. 105 above). She argues
further that the state has participated in the creation of private authority
through its withdrawal, not, as Pauly maintains, only through its delega-
tion of authority. Sassen also discusses some of the new normative roles
assumed by the growing authority of non-state actors (p. 106 above).
Ronnie Lipschutz and Cathleen Fogel also describe the normative (as
well as functional) roles filled by private actors. They consider explicit
and implicit delegations of social authority to private actors who oper-
ate with “less formalized systems of norms, rules, and procedures that
pattern behavior without the presence of written constitutions or ma-
terial power” (p. 123 above). For Lipschutz and Fogel, private actors
whose expertise is acquired through global networks of knowledge and
practice are taking over responsibilities no other actor wants, resulting
in a “very diffuse” system of globalizing governance (ranging from en-
tirely private to mixed public and private ventures). Mark Juergensmeyer
similarly describes how religious transnationalists challenge the state’s
monopoly on morally sanctioned violence and construct for themselves
Private authority as global governance 205
“a basis of legitimacy for public order other than that upon which the sec-
ular state relies” (p. 152 above). During the height of the Sikh rebellion
of the 1980s, Juergensmeyer argues that the “militants were treated as if
they possessed an authority rivaling that of police and other government
officials” (p. 150 above).
Though he is wary about characterizing organized crime as possessing
authority, rather than power, Phil Williams similarly describes how ca-
pacity gaps and functional holes are filled by criminal organizations that,
in effect, substitute or compensate for the state. In transitional states like
contemporary Russia, the lack of an appropriate regulatory framework
means that there is “neither protection nor contract enforcement, a con-
dition that allows organized crime to become a surrogate for government”
(p. 172 above). With reference to Colombia, Williams goes even further
to describe how the paternalism of the Medellin cartel earns the gratitude
of the people “and at least tacit support from members of the populace”
(p. 173 above). Thus, they are accorded certain rights of legitimate au-
thority through the social recognition and public consent of the governed,
granting them a form of private authority, as defined above.
Bernedette Muthien and Ian Taylor describe a market-driven return
to the precolonial era within some states of contemporary Africa, to a
period when large trading companies constituted themselves “into an
effective government and established an administrative and legal infras-
tructure to run” countries (p. 190 above). In some parts of Africa today,
“private companies are using their own resources to protect installations,
enforce regulations, and discipline staff on compounds little touched by
local laws.” As they conclude, “[a]uthority has become truly privatized”
(p. 194 above).
Although private authority is not always equivalent to and/or does
not always exceed the authority of the national state, the contributors
to this volume present a persuasive argument about the extent, the sig-
nificance, and the complexity of the emergence of private authority in the
international system. Markets, market actors, transnational movements,
mafias, and mercenaries are each recognized socially as possessing au-
thority within certain issue domains. Their authority is legitimate to the
extent that they obtain the consent of the governed and exercise certain
rights within those domains.
How did private authority emerge? Was it delegated by the state, nego-
tiated with the state, enabled by the state, allowed by the state, or seized
from the state? The contributors to this volume are generally divided be-
tween those who contend that authority was yielded, implying that the
state had little or no choice (Kobrin, Lipschutz and Fogel, and Muthien
and Taylor) and those who argue that authority was seized deliberately by
private actors (Juergensmeyer and Williams). Saskia Sassen stakes a mid-

dle position on the issue, arguing that private authority has been enabled
by states. Only Louis Pauly maintains that authority is delegated delib-
erately by the state (and only in good times), rendering it a momentary,
temporary, or fleeting phenomenon.
These different assessments of how private authority emerged do not
correspond directly to the three principal forms of private authority (mar-
ket, moral, or illicit authority) considered in this volume. Among those
interested primarily in private market authority, there is an implicit de-
bate between the views of Stephen Kobrin, who describes the retreat
of the state, and the skeptical views of Louis Pauly, who describes the
state’s strategic delegation of authority. Within the domain of moral au-
thority, Mark Juergensmeyer’s description of the seizure of authority by
private transnational religious movements differs from Ronnie Lipschutz
and Cathleen Fogel’s characterization of the ways in which the state
has yielded its regulatory authority. In the area of illicit authority, Phil
Williams’s assessment of the explicit challenges posed by mafias con-
trasts with Bernedette Muthien and Ian Taylor’s assessment of the ways
in which private armies have moved into the vacuum left by the state.
Despite their different assessments of how it came about, however, nearly
all of the contributors included in this volume agree that private locations
of authority have emerged in the international system.
Implications of the emergence of private authority

for global governance
What are some of the implications of the emergence of private authority in
the international system? What are its implications for the changing role
of the state, for the institution of state sovereignty, and for the prospects
of accountability and global governance? There are a number of impor-
tant insights contained within the work of the contributors to this volume
that begin to answer some of these important questions about the emer-
gence, the nature, and the functioning of private authority in the interna-
tional system. These insights often extend across the threefold typology
of market, moral, and illicit forms of private authority that serves as the
organizing principle of the volume.
Private authority and the role of the state

Louis Pauly and Saskia Sassen agree that the state remains the ultimate
guarantor of property rights (though they do not consider in detail the
situation in transitional states, as described by Phil Williams). Sassen
develops this argument when she examines the role of the state in the ne-
oliberal globalization process. She asks whether the state is simply reduc-
ing its authority to market-based forms of decision-making, or whether
it has a crucial role to play in the production of a new international legal-
institutional framework that is conducive to the emerging international
capital mobility regime. She argues strongly for the latter case, essentially
agreeing with Pauly that the technical, administrative capacity of the state
is irreplaceable in the context of guaranteeing property rights. However,
she provides an important caveat to this argument by suggesting that the
act of guaranteeing is itself becoming privatized to an important extent.
She draws our attention to the impressive growth of international com-
mercial arbitration as an example. Her observation suggests the potential
for market authority to challenge sovereign authority as the sole guaran-
tor of the “adequately firm political foundations” that Pauly (and others)
argue that markets require (p. 83 above). Similarly, Claire Cutler, who
emphasizes the broad and far-reaching effects of private market author-
ity, notes that in many cases private actors turn to the state for assistance
in enforcing regime norms.
In a similar vein, Ronnie Lipschutz and Cathleen Fogel argue that
firms take advantage of different (and, typically, less restrictive) regula-
tory regimes across states. However, this imposes transaction costs for
them, and hence they prefer a single global set of regulatory standards to
mitigate these transaction costs. Drawing upon the work of Karl Polanyi,
in a fashion that similarly resonates strongly with Louis Pauly’s analysis,
Lipschutz and Fogel argue that markets require rules for orderly func-
tioning. Thus they argue that, while market actors may desire domestic
deregulation, they do not desire the elimination of all rules at the
international level because this would subvert the orderly functioning of
global markets, and drive up cost of transactions within these markets.
Transnational market actors resist transnational social regulation on this
basis as well. Thus market authority appears to have a strong influence
in determining how some forms of transnational rules are formulated,
while other forms are dismantled. Claire Cutler, similarly, emphasizes
the self-regulatory nature of private authority, suggesting that market au-
thority is acquiring the capacity to structure a transnational regulatory
environment that is conducive to its operations.
Ronnie Lipschutz and Cathleen Fogel also agree with Louis Pauly when
it comes to their assessment of some of the consequences of the emer-
gence of private authority for the domestic political practices of the state.
Lipschutz and Fogel discuss the social purpose of transnational regula-
tory harmonization provided by international regimes, and argue that
the resulting regulatory harmonization is intended to “eliminate politics”
by removing from the domestic realm to the international realm. Simi-

larly, Pauly contends that references to market “authority” are intended
to allocate politics to the market. One of the questions posed in the in-
troductory essay of this volume was that of whether and why the state
is complicit in the devolution of its authority to private actors. Pauly,
in particular, provides us with an answer. State managers may wish to
avoid responsibility and domestic accountability for painful domestic ad-
justments generated by their liberalization policies. The invocation of
the authority of the market permits them to deflect responsibility to the
abstract entity of the global markets, which are not obviously account-
able to a national citizenry, a point to which we will return in a later
section.
Private authority and the transformation of state sovereignty

There is strong agreement among most of the contributors to this volume
that the emergence of private authority has affected the operational mean-
ing of state sovereignty. In the realm of market authority, Stephen Kobrin
and Saskia Sassen emphasize different practices in their respective contri-
butions, but both argue that, in Sassen’s lexicon, globalization generates
an emerging “set of practices that destabilize another set of practices,
i.e., some of the practices that . . . constitute national sovereignty” (p. 104
above). Kobrin sees this as a transition from a modern to a post-modern
mode of organization. With the “end of geography” accompanying global
financial integration, he argues that “the meaning of sovereignty will
evolve”; he invokes the medieval period as analogous, where “[b]orders
are diffuse and permeable,” “[r]elationships are increasingly networked,”
and “[m]ultiple and competing loyalties result” (p. 65 above). This is
a far cry from the Westphalian ideal of state sovereignty. Sassen argues
that global financial integration is a process involving “multiple policy,
analytic, and narrative negotiations” that have been “coded as ‘dereg-
ulation’ ” (p. 104 above). Both Kobrin and Sassen agree that there is a
new grid of economic transactions that has been superimposed over tra-
ditional, geographic-economic patterns of organization. But Sassen is
more circumspect than Kobrin (though less so than Louis Pauly) regard-
ing the long-term consequences of this development for international
organization and global governance.
Stephen Kobrin argues that transnational networks of private capital
actors are replacing hierarchies and national markets as the basic form
of organization, and he emphasizes the migration of markets into cy-
berspace. His analysis implies that not only is market authority supplant-
ing sovereign authority, but also that “the real question is whether the
spatial concepts of borders, territory, and jurisdiction apply to electron-

ically organized global networks” (p. 61 above). Saskia Sassen argues
that because the global economy has to be produced, reproduced, ser-
viced, and financed somewhere, its structure is not purely a function of
the power of transnational firms or of markets. She emphasizes the ex-
tent to which the global economy materializes in national territories, in
“global cities,” where financial networks and their support infrastructures
provide the command and control functions of the global economy. This
requires that the globalization process be negotiated with the state.
Saskia Sassen argues that these negotiations leave territorial boundaries
intact, “but do transform the institutional encasements of that geographic
fact” (p. 103 above). Thus in its manifestation as market authority, private
authority transforms both the state and state sovereignty. However, the
state participates in this transformation. We agree and would argue that
market (private) authority does not simply supplant sovereign (public)
authority, but that sovereign authority accommodates the burgeoning
demands for market authority by participating in its own transformation.
Louis Pauly argues that the globalization process enhances some state
capacities, while Stephen Kobrin and Saskia Sassen contend that it di-
minishes others. Ronnie Lipschutz and Cathleen Fogel maintain that the
state will remain an important actor for some time to come, but this does
not mean that the state will remain the same institution that it has been
in the past. They suggest that states are yielding “substantial” amounts
of regulatory authority to transnational regulatory regimes. Thus, our
contributors provide a preliminary response to the question about the
future of state sovereignty posed in the introductory chapter of this vol-
ume. Most argue that we are witnessing a transformation, rather than the
replacement, of state sovereignty.
In the form of private authority that we have termed moral authority,
Ronnie Lipschutz and Cathleen Fogel discuss the emergence of overlap-
ping sets of authorities arising to challenge the regulatory monopoly of
the state that characterized much of the twentieth century. Like Stephen
Kobrin, they see an emerging “globalizing ‘heteronomy’ ” (p. 124 above),
in which regulatory authority is distributed across actors, but is focused
on specific issues and problems. This form of private authority is devel-
oping because specific private actors, particularly NGOs, are shouldering
responsibilities that other actors, including state actors, no longer wish
to take on. Authority is accruing to NGOs on the basis of their technical
expertise, or what Kratochwil has termed “consensual knowledge.”1 In
this instance, NGOs perform an “epistemic function” by providing the
consensual knowledge necessary for the formation and maintenance of
transnational regulatory regimes. State managers share regulatory
authority with NGOs, whose moral authority is translated into regula-

tory authority, as well as with transnational market actors, whose market
authority is translated into regulatory authority.
In our other illustration of moral authority, Mark Juergensmeyer points
out that transnational religious movements employ strategic violence to
attack state authority directly, in an effort to demonstrate that the state
no longer possesses a monopoly over the legitimate means of violence.
To the extent that these groups, movements, and ideologies succeed in
demonizing the secular, Western (Westphalian) state, and particularly
the transnationally culturally influential United States, they undermine
Weberian empirical statehood. The secular, Western state is, in their eyes,
illegitimate. Since they regard their own actions as not merely legitimate,
but divinely sanctioned, their actions may be seen as a dramatic and de-
structive way to establish that the entire model of the Westphalian state
sovereignty is illegitimate. Juergensmeyer argues powerfully that the act
of killing on behalf of a moral code is overtly political, because it attacks
the state’s monopoly of legitimate violence. Each of the groups Juergens-
meyer examined in his contribution to this volume advances claims of
transnational moral authority immanent within their doctrines that they
believe are morally superior to the bases of the secular, Western state, and
that provide the basis for viable alternatives to the Westphalian conception
of sovereignty.
Within the realm of illicit (private) authority, the contributors to this
volume demonstrate how actors such as mafias and mercenaries capital-
ize on the failures of sovereign (public) authority to fulfill certain basic
functions or to provide fundamentally vital public goods for the citizenry.
Phil Williams identifies common characteristics of weak states, which
facilitate their penetration by transnational criminal organizations. He
argues that they tend to possess low levels of state legitimacy, porous bor-
ders, ineffective legal structures and criminal justice systems, and corrupt
civil administrations. All of these features presage low levels of Weberian
empirical statehood and sovereign legitimacy. Thus he suggests these
“capacity gaps” of weak states generate certain “functional holes” that
appear to undermine the legitimacy of public authority. Illicit (private)
authority in the form of transnational organized crime rushes into the vac-
uum created by these gaps. He notes that some criminal organizations and
leaders “engage in a form of paternalism that earns them considerable
gratitude and . . . support from members of the populace” and that their
sometimes “[v]ery visible, and sometimes even ostentatious, support for
charities is another aspect of the same tendency.” The consequence for
state sovereignty here is that illicit (private) authority becomes “a surro-
gate” for state (public) authority (pp. 170–174 above).
Bernedette Muthien and Ian Taylor argue similarly that in many of the
weak states of mineral rich sub-Saharan Africa, “security is no longer a
service [provided] by the state for all its citizens, but has become a market
good” (p. 186 above). Their discussion of characteristics of weak African
states, and how their weaknesses facilitate their penetration by private
armies and mercenary forces, resonates strongly with Williams’s descrip-
tions of the public authority failures that enable penetration by mafias.
However, Muthien and Taylor note that, in some instances, the private
provision of security services to embattled states has been legitimated by
transnational international agencies such as the International Monetary
Fund. While highly critical of most illicit mercenary arrangements,
Muthien and Taylor consider whether they might serve a positive role in
some instances (as the IMF seems to believe), ostensibly in the defense
of an endangered public authority. Like the expansion of transnational
criminal organizations, the introduction of mercenary forces also under-
mines the authority of the sovereign state and raises profound questions
about the operational meaning of state sovereignty.
Private authority and democratic accountability

Many of the contributors to this volume raise explicit concerns about the
limited degree (or virtual absence) of accountability of private author-
ity. Claire Cutler contends that, as firms begin to function like govern-
ments, this raises major issues for democratic and representative theories
of governance. She maintains that private entities are not normatively en-
titled to act authoritatively for the public, because they are not subject to
mechanisms of political accountability, but rather are only subject to the
accountability of their private members. Ronnie Lipschutz and Cathleen
Fogel similarly raise questions about the privatization of global regulatory
authority and conclude that the trend in the future “is likely to be toward
greater privatization of regulation and less democracy and accountability
around the world” (p. 121 above). Bernedette Muthien and Ian Taylor
voice the same concern and warn that, because they are unaccountable
to wider society, “private armies are able, in the most extreme cases, to
asset-strip a country with virtual impunity, leading to irreversible eco-
logical degradation, the illicit export of resource commodities, and the
general encouragement of a culture of criminality” (p. 197 above).
In the domain of market authority Stephen Kobrin argues that, with
globalization, emergent forms of private authority such as networked
oligopolies are able to extract unprecedented regulatory concessions from
host governments, to which multinational corporations had previously
been relatively responsive. Louis Pauly notes the “discipline” imposed
on autonomous state action by market authority in the form of floating

exchange rates and international capital mobility. He also suggests that
this has implied cutting back on the welfare state, in spite of the fact
that its services remain in high demand and enjoy high levels of popular
support in most advanced, industrialized states. However, Pauly chal-
lenges the assertion that no one could be held accountable for a finan-
cial catastrophe resulting from truly integrated global financial markets.
He argues that the authority to manage global finance either has been
dispersed to supranational institutions or has been privatized. However,
in the event of a major financial crisis, agencies like the IMF take on
the role of scapegoat to buffer the political crises attending financial cri-
sis to prevent a legitimation crisis of the global, socioeconomic order.
The vituperative criticism attending the IMF’s handling of the Asian
financial crisis of 1997, from economists and commentators of all stripes,
appears to bear Pauly out in this context.2 In the final analysis, however,
Pauly contends that justice and legitimacy are inextricably linked, and
that governments will not be able to shift ultimate political authority to
what we are calling market authority. He remains skeptical of the long-
term causal significance of market authority and argues that markets are
a tool of policy (of sovereign authority) rather than a substitute for it.
Saskia Sassen addresses the relationship between democratic account-
ability and the growth of private authority in the brief description of her
new research oriented toward tracing the microhistory of US legal ac-
commodations to the globalization process. The increased coordination
of regulatory standards is being conducted in a manner that is largely
hidden from the global public, and Sassen argues that there is a need for
the state to do much more than it is doing to increase the level of ac-
countability built into the global economy. Sassen issues a call for a “new
politics of accountability” (p. 107 above). Perhaps the strong levels of
protest seen at the meetings of the World Trade Organization in Seattle,
and the IMF and World Bank in Washington in 2000, could be described
as a popular echo of Sassen’s call.
In the realm of moral authority, Ronnie Lipschutz and Cathleen
Fogel provide a somewhat hopeful assessment of the prospects for greater
accountability when they note the “growth in neofunctional authority”
resulting from the proliferation of non-corporate NGOs with emancipa-
tory goals and some influence in the global regulatory process.
These organizations are accorded a certain degree of moral authority
because of their non-state nature, their substantive expertise, and their
positive normative commitments. However, Lipschutz and Fogel are con-
cerned that those forms of global regulation that serve the narrow
self-interests of specific actors may be legitimated via transnational
processes that pass for global governance. Like Saskia Sassen, they call
for a countervailing movement to bring public scrutiny and participation
to bear on these global regulatory processes. The application of more
moral authority is seen as a democratic prescription for the undemocratic
application of market authority.
Mark Juergensmeyer’s study of the moral authority of transnational
religious movements suggests that adherents of these movements wish
precisely to attack the legitimacy of secular, democratically accountable
public authority. The private application of religious violence ultimately
aims to reconstruct both transnational and domestic public authority
on transcendental bases. It does this with a combination of a dramatic
demonstration of the weakness of public secular authority, coupled with
an appeal to the moral authority of a transnational, transcendental creed
to which “democracy” is either anathema, or is conceived in a radically
different fashion than in the secular West. While they may promise a
form of accountability (before God), transnational religious movements
are not accountable in this world.
In the realm of illicit authority matters are somewhat simpler. Democ-
racy has already been subverted by the partial or complete collapse of the
public authority of weak sovereign entities. Illicit (private) authority steps
in to provide public goods and to meet needs and responsibilities that the
sovereign (public) authority has neglected or eschewed. To the extent
that mafias and mercenaries are visible and successful in providing these
public goods, they may enjoy the partial, popular legitimation of their
exercise of private authority. However, it is difficult to see how these out-
comes may be described as democratic or accountable (beyond the basic
provision of public goods). The intervention by private military forces in
Sierra Leone had some positive outcomes, but, as Bernedette Muthien
and Ian Taylor suggest, “they only went where the payoff was high”
(p. 194 above). The people who lived in the mineral-rich areas benefited
from the protection provided by the mercenary force, but those who did
not had to fend for themselves. Private entities in strong possession of the
means of violence, whether these means are either locally or transnation-
ally perceived as legitimate or as illegitimate, are ultimately accountable
to no one.
The reversibility of private authority

Can the emergence of private authority be reversed? Louis Pauly argues
forcefully that, since markets ultimately rely on stable political founda-
tions, public authority may seize back its perquisites at any moment,
and is likely to do so in the advent of bad times. He argues that the
responsibilities of a public authority to attend to the welfare of its citi-

zenry may be displaced for a time, but it can never be completely avoided.
Pauly concludes that “it is always easy to say ‘Let the market work.’ But it
is politically unthinkable actually to do it” (p. 87 above). Having elabo-
rated on the definition, the forms, and the implications of the emergence
of private authority in the international system, we now need to examine
the conditions under which the emergence of private authority might be
reversed. In order to understand the potential for the reversal of different
forms of private authority, we also need to understand the different bases
(and types) of each of the three forms of private authority considered in
this volume.
The potential reversal of private market authority

There are two principal types of private market authority considered in
this volume: institutional and normative. Institutional market authority
refers to the capacity of private actors to set standards that are recognized
and adhered to by others. Normative market authority refers to the gen-
eral acceptance of the more abstract idea that markets should determine
decision-making over important issues.
Claire Cutler concentrates on institutional market authority in her con-
tribution to this volume. She argues that institutional market authority
ranges in degree of institutionalization from informal industry norms
and practices on the low end of the continuum to highly institutional-
ized private international regimes on the other. The authority of private
institutional actors is based on their capacity to establish technological,
manufacturing, and regulatory standards that become recognized and
adhered to by other actors. The proliferation of ISO standards generated
by transnational market actors and the commercial regulatory authority
adhering to burgeoning agency of corporate NGOs are both examples of
institutional private market authority.
Normative market authority is based on the acceptance of essentially
market-based modes of decision-making among important political ac-
tors. While social recognition is necessary to constitute authority, this
form of private authority rests upon the power inherent in the private
control of mobile, productive, and portfolio capital, along with the ca-
pacity to generate new productive technologies. The oligopolistic net-
works of transnational corporations that are featured in Stephen Kobrin’s
analysis are exemplars of this type of private market authority, man-
aged from the command and control centers of Saskia Sassen’s “global
cities.” Louis Pauly refers to them as the international capital mobility
regime.
How might the emergence of these different types of private market

authority be reversed? Private market authority would most likely revert
to public authority in the event of a major normative delegitimation of the
market mechanism. A global financial crisis affecting the major financial
centers or a broader crisis of global market capitalism could create the
conditions under which, as Pauly suggests, the state might take unilateral
action to seize back that which it has ceded (or delegated) to private,
market-oriented actors. Public authorities would presumably revise their
statements about the power and inevitability of global market forces in an
effort to reassure the citizenry to whom Pauly suggests they remain ac-
countable. However, the probability of this scenario is likely to be sharply
contested by market optimists and observers who maintain that global-
ization is driven by irreversible technological developments. Institutional
types of private market authority would be easier to reverse, particularly
if their capacity to set and enforce standards were diminished by new
players. However, the effects of this reversal would be less extensive and
would most likely be contained within individual economic sectors.
The potential reversal of private moral authority

As with private market authority, there are different types of private moral
authority, reflecting the different claims on which it is based: expertise,
neutrality, or normative superiority. Some private actors possess moral
authority because of their capacity to provide expertise on an important
issue. Others claim moral authority because of a combination of their
possession of expertise and the plausibility of their claims of neutrality
on a controversial issue. Still other private actors claim moral authority
because of more general normative claims that they are socially recog-
nized to represent progressive or, in some instances, morally superior,
transcendent social and political positions. The emerging regulatory au-
thority of non-corporate NGOs featured in the work of Ronnie Lipschutz
and Cathleen Fogel combines elements of all three (expertise, neutrality,
and moral transcendence), while the claims of adherents of the transna-
tional religious movements discussed by Mark Juergensmeyer are based
primarily on claims of moral transcendence.
As in the case of the potential reversibility of different types of private
market authority, the reversal of different examples of private moral au-
thority is closely linked to the bases of their claims of moral authority.
One circumstance under which the exercise of the moral authority of pri-
vate actors might revert to a public authority would involve a normative
delegitimation of the private actor through its own actions or through the
strategic discursive efforts of other actors. For example, an action taken
by a non-governmental organization, or a socially recognized, discursive

claim by its adversaries that it had abandoned its neutrality or become
unable to generate expertise, could result in a crippling withdrawal of the
social recognition of the moral authority of the NGO. Similarly, action
by or socially recognized discursive claims against activist adherents to
transnational religious movements could have similar effects. The exclu-
sion of NGOs from input into transnational regulatory processes might
temporarily enhance their moral authority in the view of their support-
ers, but would at the same time negate their regulatory authority. In as
much as authority remains the legitimate use of power, the negation of
the power to act necessarily negates the authority to act. However, the
negation of legitimacy in action can be more crippling to the capacity to
act authoritatively, because prohibitions that remove the capacity to act
may ultimately enhance the legitimacy of the excluded actor.
The excluded actors’ loss of capacity to act can itself be reversed by
external pressure from outraged third parties who continue to grant social
recognition to the legitimacy of the excluded actor. For example, the
imprisonment of Nelson Mandela by the apartheid regime of South Africa
negated his capacity or power to act against the regime directly by virtue
of the fact of his incarceration and isolation. This actually enhanced his
normative legitimacy and moral authority among reformist elements of
the South African polity. His ultimate release from prison reversed his
incapacity to act, and he emerged as an even stronger political actor
in view of the moral authority that adhered to him for having suffered
under the apartheid regime. He was consequently accorded the pinnacle
of political (public) authority upon the delegitimation and collapse of the
previous South African public authority.
The potential reversal of private illicit authority

The claim to authority of private illicit actors in the international system
rests upon their capacity to provide public goods and their private control
of the means of violence that competes with, or supercedes, the capacity of
public authority. The social recognition of illicit authority is also essential
to its emergence as private authority, not simply its possession of power.
Accordingly, there are two principal ways in which private illicit authority
might be reversed: either a normative delegitimation or a nullification of
the capacity or power to act.
Failure to provide the public goods underprovided by public authority,
either through conscious decision or through incapacity, might result in
the normative delegitimation and local withdrawal of social recognition
of illicit authority. For example, the mafias and mercenaries that fail to
provide public goods such as the enforcement of contracts and the provi-
sion of security tend to be viewed, even by prospective recipients of these
public goods, as mere predators and parasites. Mafias and mercenaries
most successfully penetrate weak states; hence, the emergence of private
illicit authority might also be reversed by the success of state-building or
institution-building efforts oriented toward strengthening state capacities
to provide public goods to the citizenry. Unfortunately, state-building is
a long-term project and is not terribly easy to accomplish. Finally, exter-
nal intervention and/or policing by transnational public authorities could
produce the same outcome as successful state- and institution-building.
By generating a competing normative legitimacy for public authority,
enabling state capacity to replace private violence capacity, and under-
mining the fiscal basis of illicit authority, external intervention could also
reverse the emergence of private illicit authority, at least in the short term.
In table 7 we present a summary of the preceding discussion of the bases
of each major subtype of private authority considered in this volume. We
also suggest some major examples of each type of private authority. In the
final column we derive, from the logic of the arguments about the bases
of these different subtypes of private authority, some of the conditions
under which the different types of private authority might be reversed.
Ideas for future research on private authority

and the international system
The preceding discussion of the conditions under which private authority
might be reversed suggests a rich agenda for future research. Many of the
logical assertions summarized in table 7 could be converted into testable
hypotheses about the nature and future direction of authority in the inter-
national system. At the same time, the research included in this volume
has illuminated many questions that were obscured when we began. We
believe we have made a useful beginning in exploring the phenomenon of
private authority and its importance for the contemporary international
system. We can now see more clearly some of the exploratory paths down
which we could tread, paths that were obscured before we had conducted
some reconnaissance of the general intellectual terrain.
There is clearly more conceptual work to be done. In this volume, we
have provided a provisional typology of three forms of private author-
ity that are being exercised in the contemporary international system:
market, moral, and illicit authority. We have considered their bases, iden-
tified subtypes within each category, listed examples, and suggested some
of the conditions under which we might anticipate a potential reversal
of each form of private authority. However, our review of the chapters
Table 7. Typology of private authority
Type of private Sources of potential reversal

authority Bases of private authority Examples of private authority of private authority
Market authority Capacity to set standards ISO standards Normative delegitimation: –

recognized and adhered Corporate NGO regulatory global financial crisis – crisis
to by others (institutional authority of global capitalism
market authority) Networks of transnational Breakdown of networks
Acceptance of market-based corporations Unilateral action by public
decision-making (normative International capital mobility authority
market authority) regime
Moral authority Capacity to provide expertise Non-corporate NGO regulatory Normative delegitimation of
(authorship) authority non-state NGO action capacity
Status of non-state, non-self Transnational religious Exclusion of non-state NGOs by
interested actor or neutral movements market and public authority
(referee) Normative delegitimation of
Claim to represent socially transnational religious
progressive or morally movements in view of adherents
transcendent position
(normative)
Illicit authority Capacity to provide public Penetration of weak public Normative delegitimation via
goods underprovided by authorities by transnational failure to provide
public authority criminal organizations and public goods Successful state-/
Control of private means private armed forces institution-building to
of violence strengthen public authority
Successful intervention/ policing
by transnational public
authority
included in this volume suggests to us that each form of private authority

in our typology might be conceptually disaggregated and further theo-
rized in ways that could provide us some directions for future theoretical
and empirical research.
In the realm of market authority, the distinctions raised in the intro-
ductory essay and in Claire Cutler’s summation of her collaborative work
on private regimes are highly suggestive of one way in which the concept
of market authority might be further explored. As discussed above, two
major subtypes of market authority present themselves. Cutler, Haufler,
Porter, and their collaborators have recently studied one subtype: the
authoritative consequences of constructing institutions of and by mar-
ket actors, especially private transnational regimes and the norms, rules,
principles, decision-making procedures, and institutions which comprise
them. Their work is the definitive study to date of what we call institu-
tional market authority. We regard their suggestions for future research
into these institutions as excellent and refer the reader to their proposed
research program designed to garner further insights into this subtype of
market authority.
However, a second subtype of market authority, perhaps even more per-
vasive, is suggested by the normative acceptance of market-based modes
of decision-making in general. This entails research into the following
questions. By what processes have transnational market actors and, in
many cases, public authorities normatively legitimated the neoliberal vi-
sion of a globalized economy? What discursive battles have been waged to
effect this normative legitimation? Should we (or how shall we) theorize
economics as ideology rather than as “science”? As the economist Robert
Heilbroner has argued, the notion of economics “as ideology forces us
to confront directly . . . the constitutive basis of what we call the economy
and the pronouncements about it that comprise economics.”3 How does
the language of economics, employed in these discursive battles, help to
“construct” the neoliberal globalized economy? As the economic histo-
rian, Deirdre McCloskey, has observed so adeptly, the rhetorical style in
which economics is written relies upon a highly intersubjective set of so-
cial meanings. The reader (or listener) is intended to avail herself of these
meanings as she draws “truth value” from the rhetorical style.4 In short,
by what means does “market authority” acquire, for many actors, through
discursive and operational construction, its own “moral authority” as a
normatively legitimate means of allocating, for example, the painful eco-
nomic adjustments that attend the neoliberal globalization process? We
have labeled this subtype of market authority normative market authority.
Note that we are not claiming our own adherence to the normative legit-
imacy of these market-based processes and outcomes. We are suggesting
that the observed levels of market authority exercised in the interna-

tional system are inconsistent with purely coercive processes of allocating
market-based adjustment costs. In other words, if these market-based
processes and outcomes did not enjoy significant levels of normative
legitimacy, this form of market authority could not be exercised.
Even more clearly than market authority, the form of private authority
that we have designated as moral authority needs conceptual unbundling.
As suggested in the introductory chapter, the concept of “moral author-
ity” has been applied, in the context of the study by Ronnie Lipschutz and
Cathleen Fogel, as well as that of Mark Juergensmeyer, in at least four
specific contexts. First it has been applied to the authority that adheres to
those who possess useful expertise. We call this the authority of authorship.
Second, it has been applied to the authority that adheres to those who
can claim the moral high ground, or status, of neutrality as an actor in
a highly contested or conflictual social environment. It may also entail
a claim of altruism, or at least an absence of personal or institutional,
pecuniary or political self-interest.
Both the claim to expert status (specifically when it is accompanied by a
discursive claim to the “scientific,” thus “neutral,” status of the expertise
provided) may entail an implicit or explicit claim to hold the moral high
ground in a contested social interaction. Thus we are comfortable in des-
ignating both as “moral” claims. Further, both of these claims must enjoy
social recognition to function socially as claims to “authority” as opposed
to simple “capacity” or “power.” We are therefore happy that both are
forms of “authority.” Yet the variation in the source of these claims to
moral authority is sufficiently significant that we deem it useful to de-
lineate between them. We designate the second form of moral authority
claim, which adheres to those claiming neutral status in a contested social
dynamic, as the authority of the referee.
Two further distinctions arise in the work of our contributors that we
believe suggests a further subtypology of moral authority. Let us first sug-
gest that there is a generic form of the subtype. It entails a moral claim
to a normatively legitimate social purpose in the course of social action.
We shall, then, simply designate the third subtype of moral authority
as normative moral authority. Among our contributors to this section we
have two distinctive examples of the subtype. The first is the illustration by
Ronnie Lipschutz and Cathleen Fogel of the moral claim on behalf of non-
corporate NGOs to the secularly normatively legitimate claim to regulate
and certify ecologically responsible manufactures. We could, then, des-
ignate this claim as “secular” normative moral authority, though we could
just as easily further specify the context and designate it as “ecologically”
normative moral authority. The illustration of normative moral authority
provided by Mark Juergensmeyer’s study of the proclaimed social pur-

poses of transnational religious movements can similarly be designated
as a claim to “transcendent” normative moral authority.
In spite of the claims advanced by any social actor to possessing moral
authority, or any form of private authority for that matter, the social
recognition of these claims must be demonstrated to justify their claim
to the actual exercise of private authority. The claims that non-corporate
NGOs exercise private authority may not be recognized by corporate
NGOs, or even by many public authorities. Yet they are valid to the extent
that social recognition of the claims by other actors or publics lend the
NGO agency that makes it effective in participating in the construction of
regulatory frameworks for ecologically responsible manufactures, and in
certifying these frameworks. The claim of these NGOs to the authority of
authorship appears to enjoy somewhat unproblematic social recognition.
The claims of NGOs to the authority of the referee, or to the possession of
normative moral authority, are more likely to be contested by important
actors, even if they enjoy social recognition from some of them. Social
recognition of all relevant actors is not necessary to sustain a claim to
legitimate and effective private authority. Whose recognition is required
to sustain the claim is contingent upon the structure of each, unique,
social interaction environment.
The forms of illicit private authority explored by Phil Williams and
by Bernedette Muthien and Ian Taylor find their basis in the capacity of
private actors to provide public goods that are underprovided by weak or
inadequately institutionalized public authorities. The other major source
of their authority is a high capacity for delivering the means of violence.
Capabilities are a source of power, and they may be a source of authority
when, as is the case of the Weberian empirical state, the entity in pos-
session enjoys a socially recognized monopoly over the means of their
employment. In the cases of mafias and mercenaries, any monopoly en-
joyed through the means of private violence tends to be temporary, and
social recognition of the monopoly of its use is likely to be spare among
the citizenry, and grudging where it is accorded. Nevertheless, it is possi-
ble to disaggregate illicit private authority in accordance with the types of
public goods, or social services, provided by that form of private authority.
There is clearly more theoretical and empirical work to be done. Our
intention with the publication of this volume is to advance the debate
and understanding of the emergence of private authority. In the final
analysis, authority (private or public) is a social construct. The terms
of its construction are always contingent upon the self-understandings
of actors, in addition to their social understandings of one another. Like
state sovereignty, both public and private authority are social conventions.
Social conventions may be strongly institutionalized or they may be weakly

institutionalized. State sovereignty is highly institutionalized in most states,
but it is so weakly institutionalized in others that private actors can exploit
that weakness, and may enjoy a measure of private authority for delivering
public goods that the state fails to provide. Similarly, private authority is
weakly institutionalized in many of its manifestations. However, private
authority may be so highly institutionalized in some of its manifestations,
such as private regimes, that public authority may be forced to transform
its institutional and regulatory environment in order to enjoy the “public
goods” provided by the operations of transnational networks.

1 Friedrich Kratochwil, “Regimes, Interpretation, and the ‘Science’ of Politics: A
Reappraisal,” Millennium: Journal of International Relations, 17 (2) (1988), 263–
84, and Kratochwil, Rules, Norms, and Decisions: On the Conditions of Practical
and Legal Reasoning in International Relations and Domestic Affairs (Cambridge:
Cambridge University Press, 1989), pp. 60–61.
2 Martin Feldstein, “Refocusing the IMF,” Foreign Affairs, 77 (2) (March/ April
1998), 20–32; Paul Krugman, The Return of Depression Economics (New York:
Norton, 1999); Joseph Stiglitz, “Must Financial Crises Be This Frequent and
This Painful?,” McKay Lecture, University of Pittsburgh, Pittsburgh, Penn.,
23 September 1998, www.worldbank.org/html/extdr/extme/js-092398/; Stiglitz,
“Back to Basics: Policies and Strategies for Enhanced Growth and Equity in
Post-Crisis East Asia,” delivered 19 July 1999, Shangri-la Hotel, Bangkok,
Thailand; Stiglitz, “Whither Reform? Ten Years of the Transition,” keynote
address for the World Bank Annual Bank Conference on Development
Economics, Washington, D.C., 28–30 April 1999; Stiglitz, “The Insider: What
I Learned at the World Economic Crisis,” New Republic, 17 & 24 April 2000,
56–60; Robert Wade and Frank Veneroso, “The Asian Crisis: The High Debt
Model Versus the Wall Street–Treasury–IMF Complex,” New Left Review, 228
3 Robert Heilbroner, “Economics as Ideology,” in Warren J. Samuels (ed.),
Economics as Discourse: An Analysis of the Language of Economists (Boston:
Kluwer, 1990), p. 106.
4 Deirdre N. McCloskey, The Rhetoric of Economics (Madison: University of
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Index
Abacha, Sani, 178 erosion of state authority, 193

Abouhalima, Mahmud, 143–6, 150 forms of, 5
Acheson, Donald, 191 illicit forms thrive inversely to state
Afghanistan, 141, 152 legitimacy, 180
Africa, 98, 183 illicit, 164–81
and AIDS drugs, 65 market, 6, 76, 77
and financial institutions, 184 moral, 14, 146–51
and mercenaries / private armies, of the state, 163
185–97, 205 overlapping, 64, 67
embassy bombings, 141, 145, 148 private authority: types, bases, examples,
“age of extremes,” 45 and sources of potential reversal of,
AIDS/HIV, 65, 128 218
al Qaeda, 142, 152, 153, 154 socially constructed, 6
Algeria, 142, 152 see also illicit authority, market authority,
alliances, see transnational strategic moral authority
alliances
American dominance, 144,149 Baker, Wayne, 53
Amnesty International, 14, 67 Bank for International Settlements, 83
anarchy, 4 banking, secret, 169
Angola, 185, 187, 188, 194 underground, 179
anti-America, 145 Barlow, Eben, 191, see also mercenaries
satanization, 148 Berger, Samuel, 11, 46
anti-globalization movement, 76, 115, 212 Bhagwati, 135
guerrilla anti-globalists, 142, 145 Bhindranwale, Jarnail Singh, 154
anti-GMO, 128 bin Laden, Osama, 16, 141, 145, 146 148,
apartheid, 190, 191, 192, 216 152, 153, 154
Arafat, Yasir, 150, 153, see also Israel, see also al Qaeda, terrorism
Palestinian Authority Blinder, Alan, 45
arbitration, 95 border controls, 167
arms dealers, 191 borders, 45, 54, 78, 165
assassinations, 191 diffuse in middle ages, 64
Association of South East Asian Nations not irrelevant, 56
(ASEAN), 67 Bourdieu, Pierre, 149, 151
Aum Shinrikyo, 16, 147, 150, 152 Branch Energy, 189
authority, Bressand, Albert, 51
and legitimacy, 28 Bretton Woods, 79, 83, 85
criminal organizations and state British South Africa Company, 189, 190
authority, 180 Brown, Clarence, 51
defined, 3 Bull, Hedley, 64
distinguished from cooperation, 27 Burley, Anne Marie, 82
distinguished from power, 4 Bush, George W., 146, 147
241
242 Index
Cali drug cartel, 17, 166 Cox, Robert, 24

Callan, Colonel, 187 criminal law, 172
see also mercenaries critical theory, 25
capacity of states, 101, 169, 171 crossborder commodity chains, 106
attributes, 193 crossborder mergers and acquisitions, 97–9
decline of, and mercenaries, 172, 173, cultural preferences, 120, 121
188, 189 and the middle east, 146, 147
capital controls, 84 cyberspace, migration of markets and
capital flight, 173 products to, 43, 44, 46
capital flows, 78, 183 jurisdiction and, 61
and sovereignty, 81
capital markets, regulation of, 102 Daloz, Jean-Pascal, 184
capital mobility, 12, 83, 85, 214 de Larosiere, Jacques, 86
capitalism, 183 Deibert, Ronald, 60
CARE, 122 democracy, 33
Carr, Edward Hallett, 64 and privatization of regulation, 121,
Castells, Manuel, 47 125
Central Europe, 98, 99 Democratic Republic of the Congo, 185,
Chabal, Patrick, 184 187
Chadwick, Tyrone, 190 Denard, Bob, 187
see also mercenaries see also mercenaries
child soldiers, 128, 194 denationalization, 91–3
see also Sierra Leone denationalized state agendas, 103
Christian Identity, plot to overthrow the Denel, 191
United States, 150 see also South Africa
Christian militia, 142 deregulation, 91, 94, 98, 102, 104, 105,
Chrysler, 52 119
civil society associations / regulatory despotic state, 196
campaigns, 125, 128 developing world
see also global civil society accumulation for elites in, 184
Clapham, C., 185 and police, 192
Cleary, S., 195 and private armies, 192–3
climate, 128 diamonds, 128, 169, 193, 194, 195
Clinton, Bill, 115 digitalization of the world economy, 50
Coalition for Environmentally Responsible see also cyberspace, electronic space
Economies, 127 Distler, Catherine, 51
Colombia, 170, 173, 179, 205 Doctors Without Borders / Médecins Sans
common pool resource system, 121 Frontières, 65
Comores, the, 187 “dogs of war,” 187
see also mercenaries Dombrowski, Peter, 62
comparative advantage, 120, 121 domestic security, privatization of,
conditionality, 183, 184, 185 see privatizating security
contracts, 94 drug trafficking, 169, 177
cooperation, 27 Durkheim, Emile, 172
among states, 120 Dvani, K. L., 154
interfirm, 28, 29
rule-based international financial, 83 “Earth Summit,” 127
corporate accountability, 128 Eastern Europe, 98, 99
corporate armies, defined, 188 eco-labeling, 14, 133, 134
see also mercenaries economic development, 78
corruption, 167 economic globalization and sovereignty,
exacerbates fragility of African states, 104
193 economic governance, 43, 45
political criminal nexus, 177 economic integration, 44
targets and objectives of, 175 (table) Egypt, 144, 145
Index 243
electronic space, 163 as systemic change, 43, 44

see also cyberspace guerrilla anti-globalists, 142, 145
embeddedness, 91, 95 Godson, Roy, 177
EN Economic and Social Commission Goldstein, Dr. Baruch, 149
(ECOSOC), 116 governance, 4
Enlightenment, enemies of, 151 and globalization 11
environment, 127, 132, 133 and sovereignty, 101
Escobar, Pablo, 173 as a material, ideological, and cognitive
European Union, 60, 67, 98, 99 process, 118
exchange rate regimes, 81, 85 good, 185
Executive Outcomes, 185, 187, 188, 189, implications of private authority for
191, 195 global, 206–11, 213
see also mercenaries organized crime as a crude form of,
179
Fair Labor Association, 126 relocated from public to private actors,
Fateh, 150 93, 203
financial crises, 84, 86 Great Depression, 79
Asian and IMF, 212 green certification, 135
financial markets Greenpeace, 67
failures of, 78 Greenspan, Alan, 86
fragile, 88 Guehenno, Jean-Marie, 45
lightly regulated, 79 guerrilla anti-globalists, 142
relatively open, 80 Guevara, Che, 187
Ford, 52
foreign direct investment, 97–9 Haas, Ernst, 124
Foreign Investment Act of 1976, 105 Hamas, 143, 148, 149, 150, 152, 153
foreign legions, not mercenary armies, 187 hegemonic stability theory, 27
Forest Stewardship Council, 133, 136 Heilbroner, Robert, 219
forestry, 128, 130–1 (table) Herz, John, 149
Francis, David, 188 hierarchy, 53, 54
Friedman, R. B., 5 Hill, Paul, 148
functional differentiation, 124 Hiroshima, 16, 144
Hoare, “Mad Mike,” 187
G-8, 83 see also mercenaries
General Agreement on Tariffs and Trade, Hobsbawm, Eric J., 56
67 Hoogvelt, Anke, 184
and working conditions, 126 Huntington, Samuel, 181
dispute settlement orders, 31 Hurd, Ian, 6
General Motors, 52 Hurrell, Andrew, 27
Gereffi, Gary, 106 hybrids, 53, 54
Girard, Rene, 148
global capital markets, 97, 104 Ibis, 191
global cities, 12, 17, 18, 103, 214 see also Executive Outcomes, Sandline
global civil society, 124 Ikenberry, John, 82
global toxics initiative, 127 illicit authority, 164–81
globalism vs. nationalism, 78 bases, examples, and sources of potential
globalization, 4, 6 reversal of, 218 (table)
and American dominance, 144, 149 criminal organizations cloak their power
and citizenship, 9, 11 in the mantle of state authority, 180
and markets, 97 culture of criminality diminishes
and resilience of the state, 163 legitimacy of the state, 197
and structural adjustment, 45 exercised by non-governmental
and transnational corporations and organizations 161, 164–9
private armies, 189 forms of thrive inversely to state
anti-globalization movement, 76, 115 legitimacy, 180
244 Index
illicit authority (cont.) Kono, 194

organized crime as a form of see also Executive Outcomes
governance, 179, 213 Krasner, Stephen, 26
potential reversal of private illicit Kratochwil, Friedrich, 209
authority, 216–17 Kyoto Protocol to the UN Framework
India, 154 Convention on Climate Change, 127,
Kashmiri rebels, 148 135
Punjab, 154
Sikh rebellion, 150, 151, 153 labor, 128
software industry of, 51, 59 land mines, 127, 128
indigenous rights, 128 Latin America, 98, 99
information technology, 51 le Roux, Mauritz, 191
see also cyberspace legitimacy, 28
injustice, 144 and organized crime, 179
integration, 76 based on traditional culture, 154
interdependence, 45, 76 differentiates authority from power, 204
International Banking Facilities, 105 Lerner, Yoel, 149
International Centre for Forestry Liberalism, 32, 33, 87
Research, 127 liberalization, 102, 105, 119
International Chamber of Commerce, 87 see also deregulation
International Labour Organization, 126 Locke, John, 151
international law, 115 Lubowski, Anton, 191
International Monetary Fund, 6, 77, 83, Luitingh, Lafras, 191
86, 115, 207
International Network on Small Arms, 126 mafias, 4, 170, 210
International Organization for see also organized crime, transnational
Standardization, 106 criminal organizations
International Red Cross, 122 Malone, Thomas, 51
international regimes, limitations of 116 Mandela, Nelson, 216
system of state-like, 123 Mansbach, Richard, 62
international system, 4, 217 maritime transport industry, 34
International Tropical Timber market authority, 76, 77, 87, 204, 207, 220
Organization, 127 bases, examples, and sources of potential
internet, 52 reversal of, 218 (table)
email ethnicities, 153 normative, 219
see also cyberspace, electronic space market collapse, 87
Iran, 152, 154 see also financial crises
Ireland, 63 market failures, 78
Islam, 16, 144, 146 Mashonaland, 190
Islamic extremism, 141–55 Mathews, Jessica, 162
Islamic law, 144, 145, 150 McCloskey, Deirdre, 219
Islamic Salvation Front, 154 McDonough, Bill 86
Israel, 143, 149 McMahon, Darrin, 151
Italy, 177, 179 McVeigh, Timothy, 143, 148
Medellin cartel, 166
Japan, 98, 177 Medellin Without Slums, 173
justice, 87, 96, 117 media and terrorism, 146, 147
and terrorism, 148 mercenaries, 4, 17, 187–97, 210, 211
and despotic states, 196
Kahler, Miles, 26, 62 and developing countries, 192
Kashmir, 148 and rescue of child solidiers, 194
Keohane, Robert, 26, 27, 56 as defined by Geneva Convention, 187
KGB, 173 as defined by South Africa’s Regulation
Khalistan, 151 of Foreign Military Assistance Act of
Khomeini, Ayatollah, 145, 147, 154 1998, 187–8
Index 245
ideological, 187 Nicolaidis, Kalypso, 51

in the middle ages, 188 Niemoller, Johan, 191
peace won by is devoid of legitimacy, 196 Nigeria, 178
usefulness of for humanitarian purposes, non-governmental organizations (NGOs),
194 4, 13
merchant law regime, 30 and civil society-based regulatory
Mexico, 87 campaigns, 128
Migdal, Joel, 173 and privatization of security, 194
migrants, illegal trafficking of, 164 exercising private authority, 14, 59
military power, 94 non-state actors
military regimes, 185 and moral authority, 209–10, 212
mimesis, 148 illicit, 161, 164–9
mining, 191, 193 legitimate authority accorded to, 4, 161
see also diamonds see also non-governmental organizations,
Mitrany, David, 124 quasi non-governmental organizations
modern law merchant regime, 35 norms, 91
modernity, 60 Norris, Frank, 122
and sovereignty, 62 North American Free Trade Agreement
transition to post-modernity, 63 (NAFTA) 31, 67
money laundering, 173 North Korea, 178
moral authority, 14, 117
and Nelson Mandela, 216 Ohmae, Kenichi, 47
and NGOs, 209, 210, 212 Oklahoma City, 143, 148
and terrorism, 142, 146–52 oligopolies, traditional vs.
bases, examples, and sources of potential knowledge-based, 52
reversal of, 218 (table) Organization for Economic Cooperation
examples of, 203 and Development (OECD), 83
normative, 220 organized crime, 161, 162
potential reversal of, 215–16 and Russian banking system, 176
secular normative, 220 as a form of governance, 179
transcendent normative, 221 as a surrogate for the state, 17, 173–4
Mubarak, Hosni, 144, 145, 147, 150 in Russia, 170
multinational enterprise (MNE) 59 the nature of transnational, 164
see also transnational corporations Ostrom, Elinor, 121
Murphy, Craig, 121
Palestinian Authority, 150, 153
Nagasaki, 16, 144 Parker, Martin, 63
Namibia, 191 peacekeeping ventures, public vs. private,
Nathan, L., 187 192
national law, 116 Pech, K., 188, 191, 194
nationalism, 15 Pentagon, September 11, 2001, 141, 142
see also religious nationalism “Pioneer Column,” 189
Negroponte, Nicholas, 59 Polanyi, Karl, 119, 136, 207
neoclassical economics, 133 political criminal nexus, 177
neoliberalism, 26, 183, 184, 186 political fragmentation, 124
and private armies, 189 political integration, 124
neoliberal globalization process, political legitimacy, 78
207 pollution, 129
neo-medievalism, 10, 64 and underdeveloped countries, 135, 140
neorealism, 163 n. 52
network forms of organization, 53, 54 rights to pollute, 134
see also terrorism postmodernism, 154
New International Economic Order power
(NIEO), 183 and terrorism, 152
Nichols, Terry, 143 distinguished from authority, 4
246 Index
private armies, 185–97 Rhodes, Cecil John, 189–90, 193–4

diminish legitimacy of state, 197 Rochart, John, 51
see also mercenaries Rosenau, James, 65, 123
private authority Rousseau, Jean-Jacques, 151
concept explained, 5 Rubin, Robert, 86
influence of, 203 Ruggie, John, 61, 64, 66, 82
obscured by legal formalism, 24 Russia
private economic power, 96 and indigenous criminal organizations,
private international regimes 169, 170
defined, 26, 29 banking system and organized crime,
examples of, 30, 31 176, 205
theoretical and normative dimensions, mafia, 17
24
private vs. public, 5, 34, 77, 91, 125 Salameh, Mohammed, 153, 154
peacekeeping, 192 Salinas, Raul, and drug trafficking, 177
private good deemed equivalent to the Sandline, 189
public good, 136 Saudi Arabia, 141, 146
privatization, 91 Schelling, Thomas, 167
privatization of war, 186, 192 Scheuerman, William, 34
privatizing security, 185 Scientific Certification Systems, 133
defined, 186, 192 Scott, James, 121
growth of private security in Africa, 193 secret agents, 191
profits, 119 secular power, 141
and “green reputation,” 134, 135 resented by religious extremists, 146, 147
and transnational organized crime, 161 security, defined, 186
encouraged by structural adjustment September 11, 2001, 141, 142, 154
programs, 193 Shah of Iran, 145
property rights, 94, 172, 206 Asahara, Shoko, 147, 150
Sierra Leone, 185, 194, 196
quasi non-governmental organizations Sikh rebellion, 151, 152, 205
(quangos), 128 Skocpol, Theda, 122, 123
small arms, 126, 128
Rahman, Sheik Omar Abdul, 145, 153, 154 software, 51, 52
Rainforest Action Network, 133 Somalia, 196
Rainforest Alliance, 128 South Africa, 170, 186, 189
Rand Chronicle of International Civil Co-operation Bureau, 191
Terrorism, 145 South African Defense Force, 191
Rantisi, Abdul Aziz, 153 Truth and Reconciliation Commission,
realism, 163 191
realists, 6 South East Asia, 98
regime theory, 26, 27 sovereignty
regulation, 116 and cultural preferences, 120
and welfare state, 122 and EU, 67
emerging forms of global, 125 and globalization, 101, 104
incentives for regulatory initiatives, 133 and markets, 80, 81
privatization of, 125, 136 and modernity, 62
public and private, 118 and private authority, 17, 18, 208, 209
public, 121–122 and territory, 163
religious activism, see religious nationalism, challenged by market authority, 207
religious networks, terrorism constructivist vs. structuralist views of, 8
religious nationalism, 142, 148–53 internal vs. external, 57, 66
Israeli, 149–50 undermined by mercenaries, 187
religious networks, transnational, 4, 15, Special Air Services, 190
141–3, 153–5, 204 Spruyt, Hendrik, 57
research and development, 48 Stabilco Security, 191
Index 247
standards territoriality, 45, 91, 103

convergence of, 106 and external sovereignty, 60
environmental standards and cultural and post-modernity, 63
preferences, 121 “hard shell of,” and terrorism, 149
labor, 129 territorial jurisdiction and cyberspace,
state, 3 52
and territoriality, 43 see also sovereignty
and transnational organized crime, terrorism, 15, 141–55, 204
home-state, 168 Tilly, Charles, 178
autonomy of, 57 Tokyo nerve gas attack, 143
capacity of, 169, 171 toxics, 129
captured-, 177 tradition
criminal-, 177 authority of, 5
devolution of control of / protection postcolonial political identity and, 154
from violence, 184 transnational corporations
“end of the nation-state” 118 actions “invisible” under international
erosion of authority of, 77 law, 32
four interpretations of, 163–4 and mercenaries, 187, 189
globalization and, 58 internalize production, 55
host-state, 168 transnational criminal organizations
monopoly on violence, 152, 192 (TCOs) 16, 18, 161–81
neopatrimonial, 184 and corruption, 174–8
organized crime as a surrogate for, and weak states, 169–74
173–4 see also organized crime
rump, 184 transnational strategic alliances, 46
sanctuary- or safe-haven-, 181 transnational terrorist networks, 142–55,
service-, 168 204
strong-, 177 Turkey, 152, 177
threats to from organized crime, 165,
166 (table) UN Conference on Environment and
transshipment-, 168 Development, 127
vulnerable to corruption, 169 UN Convention on Persistent Organic
weak-state, 162, 169–74, 185, 211 Pollutants, 127
stock markets, 102 UNITA, 188, 195
Strange, Susan, 6, 9, 26, 162 United States, 98, 99, 105
strategic alliances, 63 and terrorism, 141–154, 204
structural adjustment programs, and opposed to International Land Mines
privatization of security, 193 Convention, 127
structural changes, 97 US Federal Aviation Administration,
Sudan, 152 122
Summers, Larry, 135 US firms, 105
Susurluk incident, 177 USS Cole, 145
sweatshop, 126
“symmetry,” 87 violence, 142, 167
system-level analysis, 76 devolution of control of and protection
from, 184
Tajikistan, 152 state’s monopoly on, 152, 192, 204
Taliban, 141 virtual border crossings, 164
technology, 47 see also cyberspace, electronic space
and strategic alliances, 49 Vlakplass, 191
cost and risk of, 48 Vogel, Steven, 116
territorial jurisdiction, 163
territorial sovereignty Waco, 144
challenged by transnational crime war, see privatization of war
activities, 165–9 Weber, Max, 3
248 Index
Weiss, Linda, 180 World Trade Organization

welfare state, 86, 118, 122, demonstrations against, 115, 212
Western Europe, 85 example of private international regime,
Westphalian state, 162 31, 67
Westphalian system, 43 rulings of, 116
white supremacy, 150, 190 Trade-Related Intellectual Property
Williamson, Oliver, 53 Rights, 116
women and children, illegal trafficking of, World War II, 122
164 World Wildlife Fund, 127
women’s rights, 128
World Bank, 77 Young, Oran, 26
world federalism, 124 Yousef, Ramsey, 16
World Trade Center 1993 bombing, 15,
145, 148, 154 Zacher, Mark, 26, 58
World Trade Center, September 11, 2001, Zimbabwe, 189
141, 142, 154 Zulus, 190
CAMBRIDGE STUDIES IN INTERNATIONAL RELATIONS
73 Martin Shaw
Theory of the global state
Globality as an unfinished revolution
72 Frank C. Zagare and D. Marc Kilgour

Perfect deterrence
71 Robert O’Brien, Anne Marie Goetz, Jan Aart Scholte and Marc Williams
Contesting global governance
Multilateral economic institutions and global social movements
70 Roland Bleiker
Popular dissent, human agency and global politics
69 Bill McSweeney
Security, identity and interests
A sociology of international relations
68 Molly Cochran
Normative theory in international relations
A pragmatic approach
67 Alexander Wendt
Social theory of international politics
66 Thomas Risse, Stephen C. Ropp and Kathryn Sikkink (eds.)
The power of human rights
International norms and domestic change
65 Daniel W. Drezner
The sanctions paradox
Economic statecraft and international relations
64 Viva Ona Bartkus
The dynamic of secession
63 John A. Vasquez
The power of power politics
From classical realism to neotraditionalism
62 Emanuel Adler and Michael Barnett (eds.)
Security communities
61 Charles Jones
E. H. Carr and international relations
A duty to lie
60 Jeffrey W. Knopf
Domestic society and international cooperation
The impact of protest on US arms control policy
59 Nicholas Greenwood Onuf
The republican legacy in international thought
58 Daniel S. Geller and J. David Singer
Nations at war
A scientific study of international conflict
57 Randall D. Germain
The international organization of credit
States and global finance in the world economy
56 N. Piers Ludlow
Dealing with Britain
The six and the first UK application to the EEC
55 Andreas Hasenclever, Peter Mayer and Volker Rittberger
Theories of international regimes
54 Miranda A. Schreurs and Elizabeth C. Economy (eds.)

The internationalization of environmental protection
53 James N. Rosenau
Along the domestic-foreign frontier
Exploring governance in a turbulent world
52 John M. Hobson
The wealth of states
A comparative sociology of international economic and political change
51 Kalevi J. Holsti
The state, war, and the state of war
50 Christopher Clapham
Africa and the international system
The politics of state survival
49 Susan Strange
The retreat of the state
The diffusion of power in the world economy
48 William I. Robinson
Promoting polyarchy
Globalization, US intervention, and hegemony
47 Roger Spegele
Political realism in international theory
46 Thomas J. Biersteker and Cynthia Weber (eds.)
State sovereignty as social construct
45 Mervyn Frost
Ethics in international relations
A Constitutive theory
44 Mark W. Zacher with Brent A. Sutton
Governing global networks
International regimes for transportation and communications
43 Mark Neufeld
The restructuring of international relations theory
42 Thomas Risse-Kappen (ed.)

Bringing transnational relations back in
Non-state actors, domestic structures and international
institutions
41 Hayward R. Alker
Rediscoveries and reformulations
Humanistic methodologies for international studies
40 Robert W. Cox with Timothy J. Sinclair
Approaches to world order
39 Jens Bartelson
A genealogy of sovereignty
38 Mark Rupert
Producing hegemony
The politics of mass production and American global
power
37 Cynthia Weber
Simulating sovereignty
Intervention, the state and symbolic exchange
36 Gary Goertz
Contexts of international politics
35 James L. Richardson
Crisis diplomacy
The great powers since the mid-nineteenth century
34 Bradley S. Klein
Strategic studies and world order
The global politics of deterrence
33 T. V. Paul
Asymmetric conflicts: war initiation by weaker powers
32 Christine Sylvester
Feminist theory and international relations in a postmodern era
31 Peter J. Schraeder
US foreign policy toward Africa
Incrementalism, crisis and change
30 Graham Spinardi
From Polaris to Trident: the development of US Fleet Ballistic
Missile technology
29 David A. Welch
Justice and the genesis of war
28 Russell J. Leng
Interstate crisis behavior, 1816–1980: realism versus reciprocity
27 John A. Vasquez
The war puzzle
26 Stephen Gill (ed.)
Gramsci, historical materialism and international relations
25 Mike Bowker and Robin Brown (eds.)
From Cold War to collapse: theory and the world politics in the
1980s
24 R. B. J. Walker
Inside/Outside: international relations as political theory
23 Edward Reiss
The Strategic Defense Initiative
22 Keith Krause
Arms and the state: patterns of military production and trade
21 Roger Buckley
US-Japan alliance diplomacy 1945–1990
20 James N. Rosenau and Ernst-Otto Czempiel (eds.)
Governance without government: order and change in world
politics
19 Michael Nicholson
Rationality and the analysis of international conflict
18 John Stopford and Susan Strange
Rival states, rival firms
Competition for world market shares
17 Terry Nardin and David R. Mapel (eds.)
Traditions of international ethics
16 Charles F. Doran
Systems in crisis
New imperatives of high politics at century’s end
15 Deon Geldenhuys
Isolated states: a comparative analysis
14 Kalevi J. Holsti
Peace and war: armed conflicts and international order
1648–1989
13 Saki Dockrill
Britain’s policy for West German rearmament 1950–1955
12 Robert H. Jackson
Quasi-states: sovereignty, international relations and the Third
World
11 James Barber and John Barratt

South Africa’s foreign policy
The search for status and security 1945–1988
10 James Mayall
Nationalism and international society
9 William Bloom
Personal identity, national identity and international relations
8 Zeev Maoz
National choices and international processes
7 Ian Clark
The hierarchy of states
Reform and resistance in the international order
6 Hidemi Suganami
The domestic analogy and world order proposals
5 Stephen Gill
American hegemony and the Trilateral Commission
4 Michael C. Pugh
The ANZUS crisis, nuclear visiting and deterrence
3 Michael Nicholson
Formal theories in international relations
2 Friedrich V. Kratochwil
Rules, norms, and decisions
On the conditions of practical and legal reasoning in international
relations and domestic affairs
1 Myles L.C. Robertson

Soviet policy towards Japan
An analysis of trends in the 1970s and 1980s

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The Emergence of Private Authority in

The emergence of private authority has increasingly become a feature

               is Assistant Professor of International Politics

       .           is Director of the Thomas J. Watson Institute

The Emergence of Private Authority in

Cambridge Studies in International Relations is a joint initiative of

85 Rodney Bruce Hall and Thomas J. Biersteker

75 David Patrick Houghton

Series list continues after index.

  

© Rodney Bruce Hall and Thomas J. Biersteker 2004

First published in printed format 2002

ISBN 0-511-03924-7 eBook (Adobe Reader)

List of ﬁgures page xi

Part I Introduction: theorizing private authority

Part II Market authority: globalization and “globaloney”

Part III Moral authority: global civil society and

7 The global dimensions of religious terrorism 141

Part IV Illicit authority: maﬁas and mercenaries

Part V Conclusions and directions

1 The conventional relationship between function

1 Institutional arenas of global regulation page 126

 .  is Director of the Thomas J. Watson Institute

  is Lecturer in the Department of Political and Administrative

This volume arises out of a workshop entitled “Private Authority and

forces by Bernadette Muthien and Ian Taylor in an effort to strengthen

tedious but exacting tasks of standardizing the notes of each contribution,

     . 

Introduction: theorizing private authority

Rodney Bruce Hall and Thomas J. Biersteker

Traditional notions about authority in the international system derive

the international system. The concept of anarchy in the international

of normative, uncoerced consent or recognition of authority on the part

There is a recognizable issue domain over which the relationship of

area as a whole.”18 Their work explores other forms of organized interﬁrm

Sassen, Susan Strange, Matthew Horsman and Andrew Marshall, and

diminished. He conceptualizes sovereignty as the state’s capacity to

According to Sassen, globalization is partial and particular, rather than

are not always useful, either for understanding globalization conceptually,

Lipschutz and Fogel illustrate how private organizations serve as sources

religious movements are advancing a claim of transcendent moral autho-

and Nagasaki in 1945. In the ideology of the attackers, a loss of 200,000

expect the sovereign state to perform are instead executed by domestic

communities drawn to them by many of the negative, as well as positive,

Leo Panitch, “Rethinking the Role of the State in an Era of Globalization,”

46 Rodney Bruce Hall, “Moral Authority as a Power Resource,” International

This chapter focuses on the development of private international regimes

international authority and private international regimes. I am also con-

Private international regimes and private

interdependence toward a state-centric version more compatible with

a general sense of the efﬁcacy of authority. Legitimacy involves the re-

way in which Nike Inc. is organized on the basis of subcontracted

Signiﬁcantly, merchant autonomy over law creation and over interna-

regimes reﬂects a changing balance between public and private authority

Theorizing private international regimes

The attribution of public functions to private actors directly challenges

[t]his obstacle [the “public” nature of authority] is only convincing, however,

Formalism thus threatens to obscure the actuality of private authority.

The erosion of the public/private distinction also raises normative con-

Krasner, “Power Politics, Institutions, and Transnational Relations,” in Risse-

Market authority: globalization

Geographical space as a source of explanation affects all

In the Westphalian state system the basic unit of economic governance is